Could you use Equation 2-2, once for each cash flow, to find the PV
of an uneven stream of cash flows?
What’s the present value of a five-year ordinary annuity of $100
plus an additional $500 at the end of Year 5 if the interest rate is 6
percent? What would the PV be if the $100 payments occurred in
Years 1 through 10 and the $500 came at the end of Year 10?
What’s the present value of the following uneven cash flow stream:
$0 at Time 0, $100 in Year 1 (or at Time 1), $200 in Year 2, $0 in Year
3, and $400 in Year 4 if the interest rate is 8 percent?
Would a typical common stock provide cash flows more like an
annuity or more like an uneven cash flow stream? Explain.
