Question

What is the present value of a cash inflow of 1250 four years from now if the required rate of return is 8%

Answer 1

Using simple interest, it is found that the present value of the cash inflow is of 947.

Simple Interest

Simple interest is used when there is a single compounding per time period.

The amount of money after t years in is modeled by:

A(t) = A(0)(1 + rt)

In which:

• A(0) is the initial amount.

• r is the interest rate, as a decimal.

In this problem, the parameters are given as follows:

t = 4, r = 0.08, A(4) = 1250.

Then we solve for A(0) to find the present value.

A(t) = A(0)(1 + rt)

1250 = A(0)(1 + 0.08 x 4)

A(0) = 1250/1.32

A(0) = 947.

More can be learned about simple interest at brainly.com/question/25296782

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