Question

Salvatore has the opportunity to invest in a scheme which will pay $5000 at the end of each of
the next 5 years. He must invest $10,000 at the start of the first year and an additional $10,000 at
the end of the first year. What is the present value of this investment if the interest rate is 3%?
A) -$3189.80
B) -$5907.57
C) 5907.57
D) $3189.80

Answer 1

Answer:

D) $3189.80

Explanation:

Item          Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Outflows  10000 10000    

Inflows         5000 5000 5000 5000 5000

Netflows -10000 -5000 5000 5000 5000 5000

DCF @3% 1 0.971 0.942 0.915 0.888 0.8626

PV    -10,000 - 4855 4710 4575 4440 4313

NPV = $3,183