Question

An investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. What is the present value of this investment if our opportunity rate is 5%

Answer 1

Total PV= $864.11

Step-by-step explanation:

Giving the following information:

Cash flows:

Cf3= $300

Cf5= $500

Cf7= $300

Opportunity rate= 5%

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

PV= FV/(1+i)^n

PV1= 300/(1.05^3)= 259.15

PV2= 500/(1.05^5)= 391.76

PV3= 300/(1.05^7)= 213.20

Total PV= $864.11