1. Arvin has been offered a contract through which he expects to generate the following stream of cash flows. Cash flows will occur at the end of the nominated years.
Cash Flows
Year 0
Year 1
+$ 5,000
Year 2
Year 3
+$ 5,000
Year 4
–$ 2,500
Year 5
+$ 2,700
Year 6
Year 7
Year 8
+$ 8,000
Year 9
Year 10
+$20,000
Arvin expects the market interest rates will be 2.5% per annum for the next 5 years, then it will increase to 5% per annum for the following three years (years 6 – 8) and will increase again in years 9 – 10 to 6% per annum.
Assuming Arvin’s expectations regarding cash flows and interest rates are correct calculate the accumulated value of all these cash flows at each of the following time.
a. Today (Time0)
b. 6 years time (Time6)
c. 10 years time (Time10)
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