The following cash flow diagram indicates the yearly payments you will make in the future. Assume that the interest rate is 12% per year. 2400 16 17 1800 2200 2000 18 19 20 21 a) What is the present value (at time 0) of the payments above? b) Assume that the present value (at time 0) of the payments above is $8400. What amount should you save to cover these future payments for the first 19 months if you expect your parents to deposit into your account $400 at the beginning? c), Explain how your answers to (a) and (b) will change if the interest rate increases. Write your comments in your words.

The following cash flow diagram indicates the yearly payments you will make in the future. Assume that the interest rate is 12% per year. 2400 16 17 1800 2200 2000 18 19 20 21 a) What is the present value (at time 0) of the payments above? b) Assume that the present value (at time 0) of the payments above is $8400. What amount should you save to cover these future payments for the first 19 months if you expect your parents to deposit into your account $400 at the beginning? c), Explain how your answers to (a) and (b) will change if the interest rate increases. Write your comments in your words.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

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