Question

An investment will pay $200 at the end the year, $250 at the end of the next year, $400 at the end of the third year, and $500 at the end of the 4th year. Other investments of equal risk earn 6%. How much is this investment worth today

Answer 1

Answer:

PV= $1,143.03

Explanation:

Giving the following information:

An investment will pay $200 at the end of the year, $250 at the end of the next year, $400 at the end of the third year, and $500 at the end of the 4th year. Other investments of equal risk earn 6%.

To calculate the present value, we need to use the following formula on each cash flow:

PV= FV/(1+i)^n

Cf1= 200/1.06= 188.68

Cf2= 250/1.06^2= 222.50

Cf3= 400/1.06^3= 335.85

Cf4= 500/1.06^4= 396

PV= $1,143.03