Module 6.3: Uneven Cash Flows

Question 1

What do you do if there’s multiple payments over a 3 year period and it’s not even like an annuity?

Answer 1

3 different DCF problems.

Question 2

What do you do on the calculator if the compounding period changes?

Answer 2

I/Y = the annual interest rate / m
N = the number of years * m

m = number of compounding periods per year.

Question 3

What are the steps to solve a problem where you invest equal amounts in an account for 3 years to fund future equal payments?

Answer 3

1) determine how much money you need available at the start of the future equal payments. (note - this will have to be the beginning, so multiply by 1 + rate).
2) the result of step 1 becomes the FV you need to solve for, and calculate for PMT.

Question 4

What is the cash flow additivity principle?

Answer 4

present value of any stream of cash flows equals the sum of the present values of the cash flows.