Calculate the present value of the following stream of cash flows: cash flows of $7,000, quarterly for 7 years.  Assume an interest rate (annual) of 12% (i.e. APR with quarterly compounding).  Assume that the first cash flow occurs at t = 0.  Show work for all parts requiring computation.   Calculate the present value of the stream of cash flows.           What is the EAR for the same APR of 12% (i.e. APR with quarterly compounding)?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.