Question

If the current market rate of interest is 9%, then the present value (PV) of this stream of cash flows is closest to:

Answer 1

The present value (PV) of this stream of cash flows is closest to $2950.90.

Step-by-step explanation:

The present value (PV) of a stream of cash flows can be calculated using the present value formula. The formula is PV = C / (1+r)ⁿ, where PV is the present value, C is the cash flow in each period, r is the discount rate, and n is the number of periods. In this case, if the current market rate of interest is 9%, and the cash flows are received annually, we can use the formula to calculate the present value of the stream of cash flows.

1. First, let's calculate the present value of the cash flow received after the first year, which is 240. The formula is PV = 240 / (1+0.09)¹ = 240 / 1.09 = 220.18.
2. Next, let's calculate the present value of the cash flow received at the end of the second year, which is 3240 (240 + 3000). The formula is PV = 3240 / (1+0.09)² = 3240 / 1.1881 = 2730.72.
3. Now, let's calculate the present value of the entire stream of cash flows. The formula is PV = 220.18 + 2730.72 = 2950.90.

Therefore, the present value (PV) of this stream of cash flows is closest to $2950.90.

Answer 2

Consider the following timeline detailing a stream of cash​flows:

0 - ? 1-$100 2-$100 3-$200 4-$200

If the current market rate of interest is 9%, then the present value (PV) of this stream of cash flows is closest to:

This is the complete question that I found from the Internet

The present value of this stream of cash flows is closest to 472.0329

Step-by-step explanation:

In this question we are given different stream of cash flows from different years and have to discount is by 9%.

The first years cash flow is 100 and we will divide by 1.09 to find its present value.

The second years cash flow is 100 and we will divide it by 1.09^2 to find its present value.

The third cash flow is 200 and we will divide it by 1.09^3 to find its present value.

The fourth cash flow is 200 and we will divide it by 1.09^4 to find its present value.

After this we will add all 4 of these up to find the present value of this stream of cash flows.

100/1.09=91.74

100/1.09^2=84.16

200/1.09^3=154.43

200/1.09^4=141.685

91.74+84.16+154.43+141.685=472.0329