Investment X offers to pay you $4,300 per year for 9 years, whereas Investment Y offers to pay you $6,100 per year for 5 years. a. If the discount rate is 6 percent, what is the present value of these cash flows?

Present value of investment X=$29,247.28

Present value of investment Y=$25,695.42

Explanation:

Since the investment X is paying the $4,300 per year for the period of the 9 years, therefore, the present value of the cash flows pertaining to the investment X shall be determined through present value of annuity formula as follows:

Present value of investment X=R[1 - (1+i) ^-n/i}

Where

R=amount that investment X is giving per year=$4,300

i = Interest rate per year=6%

n=number of years=9

Present value of investment X=$4,300[1 - (1+6%) ^-9/6%}=$29,247.28

Since the investment Y is paying the $6,100 per year for the period of the 5 years, therefore, the present value of the cash flows pertaining to the investment Y shall be determined through present value of annuity formula as follows:

Present value of investment Y=R[1 - (1+i) ^-n/i}

Where

R=amount that investment Y is giving per year=$6,100

i = Interest rate per year=6%

n=number of years=5

Present value of investment Y=$6,100[1 - (1+6%) ^-5/6%}=$25,695.42