The appropriate annual discount rate for the following cash flows is 8 percent compounded quarterly....
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The appropriate annual discount rate for the following cash flows is 8 percent compounded quarterly. HINT: even though there is a series of cash flows, we can't use the annuity equation since the cash flows aren't constant (or growing at a constant rate). Instead you must value the cash flows using the chapter 5 formula for single cash flow, and then add them all together. The twist here is that the compounding of interest is not annual, but the cash flows are. So when you use the chapter 5 formula PV = FV / (1+r)?, you must first convert the APR into an EAR. Alternatively, you could simply change t to represent the number of compounding periods (4 in each year) and use the true quarterly discount rate as r, which in this case is APR/4. Year 1 2 Cash Flow $900 900 0 3 4 1,200 Required: What is the present value of the cash flows
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