Question

n investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 9% annually, what is its present value

Answer 1

Total PV= $829.28

Step-by-step explanation:

Giving the following information:

Cash flow:

Cf1to3= $50

Cf4= 250

Cf5= 350

Cf6= 500

Discount rate= 9%

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

PV= FV/(1+i)^n

Cf1= 50/1.09= 45.87

Cf2= 50/1.09^2= 42.08

Cf3= 50/1.09^3= 38.61

Cf4= 250/1.09^4= 177.11

Cf5= 350/1.09^5= 227.48

Cf6= 500/1.09^6= 298.13

Total PV= $829.28