Consider a geometric series of cash flows whose first cash flow occurs at time 15 and continues through time 33. The first cash flow has a magnitude of $12.500 and this amount increases by 10 each period. Find the present (time 0) equivalent value of this series if the interest rate is 8% per

Consider a geometric series of cash flows whose first cash flow occurs at time 15 and continues through time 33. The first cash flow has a magnitude of $12.500 and this amount increases by 10 each period. Find the present (time 0) equivalent value of this series if the interest rate is 8% per

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 29P

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Concept explainers

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.

Question

Consider a geometric series of cash flows whose first cash flow occurs at time 15 and continues
through time 33. The first cash flow has a magnitude of $12,500 and this amount increases by 10%
each period. Find the present (time 0) equivalent value of this series if the interest rate is 8% per

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