Revision as of 22:24, 17 November 2023 by Admin (Created page with "An investor pays 100,000 today for a 4-year investment that returns cash flows of 60,000 at the end of each of years 3 and 4. The cash flows can be reinvested at 4.0% per annum effective. Using an annual effective interest rate of 5.0%, calculate the net present value of this investment today. <ul class="mw-excansopts"><li>–1,398</li><li>–699</li><li>699</li><li>1,398</li><li>2,629</li></ul> {{soacopyright | 2023 }}")
ABy Admin
Nov 17'23
Exercise
An investor pays 100,000 today for a 4-year investment that returns cash flows of 60,000 at the end of each of years 3 and 4. The cash flows can be reinvested at 4.0% per annum effective.
Using an annual effective interest rate of 5.0%, calculate the net present value of this investment today.
- –1,398
- –699
- 699
- 1,398
- 2,629
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
ABy Admin
Nov 17'23
Solution: C.
The first cash flow of 60,000 at time 3 earns 2400 in interest for a time 4 receipt of 62,400. Combined with the final payment, the investment returns 122,400 at time 4. The present value is 122,400(1.05)-4 = 100, 699. The net present value is 699.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.