Question

what is the present value of the following cash-flow stream if the interest rate is 6%? note: do not round intermediate calculations. round your answer to 2 decimal places. year cash flow 1 $ 120 2 320 3 220

Answer 1

The present value of the cash-flow stream if the interest rate is 6% is $323.03.

What is the interest rate?

The interest rate can be defined as the amount or the percentage that is being fixed or fluctuating depending upon the condition of the agreement. The interest is calculated on the amount that is being loaned or given to the individual or a company.

According to the given question, the interest rate is 6%

1st year $120

2nd year $320

3rd year $220

Now, by applying the formula for the present value:

$\rmPV = \dfrac{fv}{(1 + r)^t}$

$\dfrac{120}{1.06} + \dfrac{320}{(1.06)^2} + \dfrac{220}{(1.06)^3}$

= 113.20 + 284.96 + 184.87

= 323.03

The present value of the cash flow stream is $323.03

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