Revision as of 01:18, 20 November 2023 by Admin (Created page with "The table below shows the cash flows for a particular investment and the prevailing spot rates. {| class="table" ! n !! Cash flow (at end of year n) !! n- year Spot rate |- | 1 || 10 || 4.0% |- | 2 || 12 || 4.5% |- | 3 || 15 || 5.5% |- | 4 || 20 || 7.0% |} Calculate the present value of this investment at the start of year 1. <ul class="mw-excansopts"><li>47.33</li><li>48.64</li><li>49.50</li><li>50.04</li><li>51.14</li></ul> {{soacopyright | 2023 }}")
Nov 20'23
Exercise
The table below shows the cash flows for a particular investment and the prevailing spot rates.
| n | Cash flow (at end of year n) | n- year Spot rate |
|---|---|---|
| 1 | 10 | 4.0% |
| 2 | 12 | 4.5% |
| 3 | 15 | 5.5% |
| 4 | 20 | 7.0% |
Calculate the present value of this investment at the start of year 1.
- 47.33
- 48.64
- 49.50
- 50.04
- 51.14
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: B
[[math]]
\textrm{PV} = {\frac{10}{1.04}}+{\frac{12}{\left(1.045\right)^{2}}}\,+\,{\frac{15}{\left(1.055\right)^{3}}}\,+\,{\frac{20}{\left(1.07\right)^{4}}}\,=9.615+10.989+12.774+15.258=48.64
[[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.