Question

You will be receiving cash flows of: $1,000 today, $2,000 at end of year 1, $4,000 at end of year

Answer 1

Answer:

Option "B" is the correct answer to the following statement.

Explanation:

Given:

Today invested amount = $1,000

1st payment(C1) = $2,000

2nd payment(C2) = $4,000

3rd payment(C3) = $6,000

Interest rate(r) = 7% = 0.07

Present value ( PV ) = ?

Computation of Present value:

$Present \ value =\frac{C1}{(1+R)^1} +\frac{C2}{(1+R)^2} +\frac{C3}{(1+R)^3}\\ Here , n = 1 , 3, 5\ are \ Consicutive\\So , Present \ value =\frac{C1}{(1+R)^1} +\frac{C2}{(1+R)^3} +\frac{C3}{(1+R)^5}\\Present \ value =\frac{2,000}{(1+0.7)^1} +\frac{4,000}{(1+0.7)^3} +\frac{6,000}{(1+0.07)^5}\\Present \ value =\frac{2,000}{(1.07)^1} +\frac{4,000}{(1.07)^3} +\frac{6,000}{(1.07)^5}\\Present \ value =\frac{2,000}{1.7} +\frac{4,000}{1.225} +\frac{6,000}{1.40}\\Present \ value = 9,412.272$

Total present value = $1,000 + 9412.272

= $10,412.272