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Relationship between future value and present value

Task: Relationship between future value and present value—Mixed stream Using only the information in the accompanying table, answer the questions that follow.

Q1. Determine the present value of the mixed stream of cash flows using a 5% discount rate.

Q2. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your investments?

Q3. What effect, if any, would a 7% rather than a 5% opportunity cost have on your analysis? (Explain verbally.)

Rate 5%

Year Cashflow Factor

1 800 1.05

2 900 1.102

3 1000 1.158

4 1400 1.216

5 2000 1.276

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## Q : Tax bracket owning a tax emempt bond

Investor in 40% tax bracket owning a tax emempt bond yielding 6% realizes an equivalent before tax yield of which of the following?