Using the time value of money to compute the present and future values of single lump sums and annuities Use the Present Value of $1 table to determine the present value of $1 received one year from now. Assume an 8% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years.
Requirements
1. What is the total present value of the cash flows received over the five-year period?
2. Could you characterize this stream of cash flows as an annuity? Why or why not?
3. Use the Present Value of Annuity of $1 table to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1.
4. Explain your findings.