Question

What is the present value of the following payment stream, discounted at 8% annually: $1,000 at the end of year 1, $2,000 at the end of year 2, and $3,000 at the end of year 3?

a. $5,022.10
b. $5,144.03
c. $5,423.87
d. $5,520.00

Answer 1

a. $5,022.10

Step-by-step explanation:

The computation of the present value is shown below:

Present Value is

= year 1 cash inflows ÷ (1 + rate of interest)^year 2 + year 1 cash inflows ÷ (1 + rate of interest)^year 2 + year 3 cash inflows ÷ (1 + rate of interest)^year 3

= $1,000 ÷ (1 + 0.08)^1 + $2,000 ÷ ( 1 + 0.08)^2 + $3,000 ÷ (1 + 0.08)^3

= $5,022.10

Hence, the present value is $5,022.10

We simply applied the above formula so that the correct value could come

And, the same is to be considered