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# Calculating present and future values

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Q12 What is the economic value today of each of the following payment streams if money can earn 7.5%.

a. \$1000, \$3000, and \$2000 due in one, three, and five months, respectively.

b. Two \$3000 payments due two and four months from now.

Q14 Ninety days ago Stella signed an agreement with Manon requiring her to make three payments of \$400 plus interest 90, 150, and 210 days, respectively, from the date of the agreement. Each payment was to include interest on the \$400 principal at the rate of 13.5% from the date of the agreement. Stella now wants Manon to renegotiate the agreement and accept a single payment 30 days from now, instead of the three scheduled payments. What payment should Manon require in the new agreement if money is worth 8.5%?

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#### Solution Preview

Q12 What is the economic value today of each of the following payment streams if money can earn 7.5%.

a. \$1000, \$3000, and \$2000 due in one, three, and five months, respectively.
Present value of \$1000 due in month i.e. P1
P1=1000/(1+(0.075*1)/12)=\$993.79
Present value of \$3000 due in 3 months i.e. P2
P2=3000/(1+(0.075*3)/12)=\$ 2944.79
Present value of \$2000 due in 5 months i.e. P3
P3=2000/(1+(0.075*5)/12)=\$ 1939.39
Present Value of multiple cash inflows=993.79+2944.79+1939.39=\$5877.97

b. Two \$3000 payments due two ...

#### Solution Summary

There are two problems. Solutions to these problems depicts the methodology to calculate present and future values of given cash streams.

\$2.19