Ask Question
21 November, 04:49

Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today. If the discount rate for such a cash flow is 9.5%, then what is the fair price that someone should be willing to pay Pam today for rights to that future cash flow?

+3
Answers (1)
  1. 21 November, 08:30
    0
    Fair price = $635.23

    Explanation:

    Th fair price that he should be willing to pay is the present value of the $1000 expected in 5 years time.

    Present value (PV) is the worth today if a future amount is discounted at a particular rate of interest.

    PV = FV * (1+r) ^ (-n)

    PV - present value = ?

    FV - Future value - 1000,

    r - discount rate - 9.5%,

    n - future date - 5

    PV = 1,000 * (1.0950^ (-5)

    PV = 1,000 * 0.6352

    PV = 635.2276653

    Fair price = $635.23
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Pam is in need of cash right now and wants to sell the rights to a $1,000 cash flow that she will receive 5 years from today. If the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers