What is the value in year 6 of a $9,000 cash flow made in year 14 if interest rates are 7 percent in years 4 through 9 and increase to 10 percent after that?
A)$4,252.19
B)$4,417.46
C)$4,561.71
D)$4,579.53

Question

Quizplus · Accepted Answer

1. To find the present value of the cash flow in year 14, we need to discount it back to year 6 using the different interest rates.
2. We can break the cash flow into two parts: years 6-9 and years 10-14.
3. The first part is a 4-year annuity with a present value of $5,059.60 using an interest rate of 7%.
4. The second part is a lump sum with a present value of $3,428.50 using an interest rate of 10%.
5. Therefore, the total present value of the cash flow in year 6 is $5,059.60 + $3,428.50 = $8,488.10.
6. To find the value in year 6, we need to compound the present value forward using an interest rate of 10% for 8 years (from year 6 to year 14).
7. The value in year 6 is $8,488.10 x (1.10)^8 = $4,561.71.
8. Therefore, the answer is C) $4,561.71.

What Is the Value in Year 6 of a $9,000