# EQV.

• May 22nd 2009, 08:02 AM
panda*
EQV.
Consider the following cash flow statement and assume all payments are certain. When one time only is shown, the amount is a discrete payment. When two times are shown, it is a continuous payment at the rate shown.

Time (years) | Amount or rate of payment/time unit
0 | -1
0 , 5 | -1
5 | 3
5 , 8 | -1
8, 10 | 5/3
10, 13 | 5/3
13 | -4

(a) Draw a scale graph of the accumulated cash flow and state what, if any, conclusions you can draw about the rate of interest for which the present value of this cash flow will be zero.

This is the graph I got so far,

http://img43.imageshack.us/img43/6200/graphv.jpg

Just wanna check if I am on the right track? Anyway, what do they meant by the conclusions to be drawn from the graph?

For the second part of the question,

(b) Using the bisection method, find the value of interest for which the net present value of this cash flow is zero to an accuracy of 0.00001 per annum. Initial test values should differ by $0.0001$ x $2^{12}$.