Question

If the interest rate is 10%, what is the present value of a security that pays you $1,500 next year, $1,400 the year after, and $1,300 the year after that?

Answer 1

The present value is $3,497.3

Step-by-step explanation:

In order to calculate the present value of a security that pays you $1,500 next year, $1,400 the year after, and $1,300 the year after we would have to make the following calculation:

Present Value = payment next year x P/F(10%, 1) + payment the year after x P/F(10%, 2) + payment the year after that x P/F(10%, 3)

Present Value= $1,500 x 0.9091 + $1,400 x 0.8264 + $1,300 x 0.7513

Present Value = $1,363.65 + $1,156.96 + $976.69

Present Value = $3,497.3

The present value is $3,497.3