Question

If the interest rate is 10%, what is the present value of a security that pays you $1,100 next year, $1,210 the year after, and $1,331 the year after that?

Answer 1

Answer:

Present value = $3,000

Step-by-step explanation:

Given:

Interest rate = 10%

Security pays = $1,100 next year, $1,210 the year after, and $1,331

Find:

Present value

Computation:

Present value = 1,100/(1 + 0.10) + 1,210/(1 + 0.10)² + $1,331/(1 + 0.10)³

Present value = 1,100/(1.10) + 1,210/1.21 + $1,331/1.331

Present value = $3,000