NPV and Bond Questions

May 1st, 2015
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What is the present value of the following uneven cash flow stream? The appropriate interest rate is 10 percent, compounded annually and many other questions ofo similar type, Would be a good practice for you.

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1)What is the present value of the following uneven cash flow stream? The appropriate interest rate is 10 percent, compounded annually.0 1 2 3 4 years| | | | |0 100 300 300 -50Answer:Here we have an uneven cash flow stream. The most straightforward approach is to find the PVs of each cash flow and then sum them as shown below:0 1 2 3 4 years| | | | |100 300 300 -5090.91247.93225.39(34.15)530.08Note (1) that the $50 year 4 outflow remains an outflow even when discounted. There are numerous ways of finding the present value of an uneven cash flow stream. But by far the easiest way to deal with uneven cash flow streams is with a financial calculator or a spreadsheet. Calculators have a function which on the HP 17B is called "CFLO," for "cash flow." other calculators could use other designations such as cf0 and CFi, but they explain how to use them in the manual. You would input the cash flows, so they are in the calculator's memory, then input the interest rate, I, and then press the NPV or PV button to find the present value.Spreadsheets are especially useful for uneven cash flows. The following spreadsheet shows this problem:ABCDE1012342100300300-503530.09The Excel formula in cell A3 is = NPV(10%,B2:E2), with a result of 530.09.2.We sometimes need t

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