Compute the present value of all cash flows

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Question

Suppose that over the next 10 years, you are to receive monthly cash payments of $500 beginning one month from today. In addition, you must pay out $1,000 at the end of years 3 and 4 (you will still be receiving $500 as you are paying out the $1,000). Assume you can earn a 7 percent return over the entire 10-year horizon. Ignoring taxes and inflation, answer the following questions.

1. Compute the present value of all the cash flows. Clearly show all supporting computations.

2. Compute the future value of all the cash flows as of the end of year 10. Clearly show all supporting computations.

3. Show that by discounting the future value at t=10 you arrive at the present value you computed in part a. Clearly show all supporting computations.

Reference no: EM133674336

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