Question 4 1 pts Consider a series of 13342 endofperiod CFs

Question 4 1 pts Consider a series of $13342 end-of-period CFs spanning 2012-2023. The interest rate is 3.7%. What is the equivalent value of this series at the beginning 2012?

Solution

There are twelve cash flows from the period 2012-2023

The cash flow series represents an annuity of $13,342

Present value of annuity

= P x [ 1 – (1 + r) ^ -n] / r

Where,

P = Annual payments = $13,342

r = Rate of interest = 3.7% or 0.037

n = 12

So, Present value of annuity

= $13,342 x [ 1 – (1.037) ^ -12] / 0.037

= $13,342 x [ 1 - 0.646628 ] / 0.037

= $13,342 x 9.550577

= $127,423.81