Present Value of Cash Flows | CFA Level 1 Exam Preparation

Calculate the Present Value of Annual Cash Flows

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Question

What is the present value today of these annual cash flows: $5,000, $4,000, $3,000, $2,000, $1,000? Assume the first cash flow occurs 1 year from today and an interest rate of 8% per year, compounded annually.

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A. B. C. D. E.

D

You could solve this question using 5 different compound interest problems, but it is easier to solve them using the calculator's cash flow functions. On the BAII

Plus, press CF 2nd CLRWork 0 ENTER DownArrow 5000 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 3000 ENTER DownArrow

DownArrow 2000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 8 ENTER DownArrow CPT. On the HP12C, press these keys: 0 BlueShift CFo 5000 BlueShift CFj 4000 BlueShift CFj 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press 8 i, YellowShift

NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard.

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