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A cash flow of Rs. 12,000 per year is received at the end of each year (uniform periodic
payment) for 7 consecutive years. The rate of interest is 9% per year compounded annually.
The present worth (in Rs.) of such cash flow at time zero is __________
payment) for 7 consecutive years. The rate of interest is 9% per year compounded annually.
The present worth (in Rs.) of such cash flow at time zero is __________
Correct answer is between '60000,61000'. Can you explain this answer?
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A cash flow of Rs. 12,000 per year is received at the end of each year...
Most Upvoted Answer
A cash flow of Rs. 12,000 per year is received at the end of each year...
Given data:
- Cash flow per year = Rs. 12,000
- Number of years = 7
- Rate of interest = 9% compounded annually
Calculation:
To find the present worth of the cash flow, we need to discount each future cash flow to its present value using the compound interest formula.
Step 1: Calculate the discount factor:
The discount factor can be calculated using the formula:
Discount Factor = 1 / (1 + r)^n
where r is the interest rate and n is the number of years.
In this case, r = 9% = 0.09 and n = 7.
Discount Factor = 1 / (1 + 0.09)^7 = 0.508
Step 2: Calculate the present value:
The present value of each cash flow can be calculated by multiplying the cash flow by the discount factor.
Present Value = Cash Flow * Discount Factor
In this case, Cash Flow = Rs. 12,000 and Discount Factor = 0.508.
Present Value = 12,000 * 0.508 = Rs. 6,096
Step 3: Calculate the total present worth:
To find the total present worth, we need to sum up the present values of all cash flows.
Total Present Worth = Present Value * Number of Years
In this case, Present Value = Rs. 6,096 and Number of Years = 7.
Total Present Worth = 6,096 * 7 = Rs. 42,672
Result:
The present worth of the cash flow at time zero is Rs. 42,672.
Explanation:
The present worth of a cash flow is the value of all future cash flows discounted to their present values. In this case, we have a uniform periodic payment of Rs. 12,000 per year for 7 consecutive years. The rate of interest is 9% compounded annually. By discounting each cash flow to its present value and summing them up, we find that the present worth of the cash flow is Rs. 42,672.
- Cash flow per year = Rs. 12,000
- Number of years = 7
- Rate of interest = 9% compounded annually
Calculation:
To find the present worth of the cash flow, we need to discount each future cash flow to its present value using the compound interest formula.
Step 1: Calculate the discount factor:
The discount factor can be calculated using the formula:
Discount Factor = 1 / (1 + r)^n
where r is the interest rate and n is the number of years.
In this case, r = 9% = 0.09 and n = 7.
Discount Factor = 1 / (1 + 0.09)^7 = 0.508
Step 2: Calculate the present value:
The present value of each cash flow can be calculated by multiplying the cash flow by the discount factor.
Present Value = Cash Flow * Discount Factor
In this case, Cash Flow = Rs. 12,000 and Discount Factor = 0.508.
Present Value = 12,000 * 0.508 = Rs. 6,096
Step 3: Calculate the total present worth:
To find the total present worth, we need to sum up the present values of all cash flows.
Total Present Worth = Present Value * Number of Years
In this case, Present Value = Rs. 6,096 and Number of Years = 7.
Total Present Worth = 6,096 * 7 = Rs. 42,672
Result:
The present worth of the cash flow at time zero is Rs. 42,672.
Explanation:
The present worth of a cash flow is the value of all future cash flows discounted to their present values. In this case, we have a uniform periodic payment of Rs. 12,000 per year for 7 consecutive years. The rate of interest is 9% compounded annually. By discounting each cash flow to its present value and summing them up, we find that the present worth of the cash flow is Rs. 42,672.
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A cash flow of Rs. 12,000 per year is received at the end of each year (uniform periodicpayment) for 7 consecutive years. The rate of interest is 9% per year compounded annually.The present worth (in Rs.) of such cash flow at time zero is __________Correct answer is between '60000,61000'. Can you explain this answer?
Question Description
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