Question

An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value

Answer 1

Answer:

$874.90

Explanation:

we can calculate this using an excel spreadsheet or by hand:

cash flow 1       $100                           discount rate = 11%

cash flow 2      $100

cash flow 3      $100

cash flow 4      $200

cash flow 5      $300

cash flow 6      $600

by hand = ($100 / 1.11) + ($100 / 1.11²) + ($100 / 1.11³) + ($200 / 1.11⁴) + ($300 / 1.11⁵) + ($600 / 1.11⁶) = $90.09 + $81.16 + $73.12 + $131.75 + $178.04 + $320.74 = $874.90

using excel and the NPV function = $874.94