Question

Which of the following statements is (are) correct?

I. At 6% interest, the present value of $400 for the first year, $600 for the second year, and $800 for the third year is $1,603.
II. The future value of the following mixed cash flow stream (if it is from an annuity due at 6% interest) $400 for the first year, $600 for the second year, and $800 for the third year is $1,999 (rounded).

Answer 1

None OF THE STATEMENTS ARE CORRECT

Explanation:

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = $400

Cash flow in year 2 = $600

Cash flow in year 3 = $800

I = 6%

PV = 1,583.05

The formula for calculating future value:

FV = P (1 + r)^n

FV = Future value

P = Present value

R = interest rate

N = number of years

1583.05 x (1.06)^3 = $1885.44

None of the statements are correct based on the above calculations

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute