Questions -
Q1. Consider uneven cash flow stream.
Year - Cash Flow
0 - $2000
1 - $2000
2 - $0
3 - $1500
4 - $2500
5 - $4000
What is the present (Year 0) of the cash flow stream if the opportunity cost is 10 percent?
What is the future (Year 5) value of the cash flow stream if the cash flows are invested in an account that pays 10 percent annually?
Q2. Assume that you won $35 million in the Florida lottery, and the State will pay you 20 annual payments of $1.75 million beginning immediately. If the rate of return on securities of similar risk to the lottery winnings, (eg the rate on 20 year US treasury bonds) is six percent, what is the present value of your winnings?