Question

The value today of the following cash flows is $5,821.86 at an interest rate of 4.5 percent. What is the value of the Year 3 cash flow?

Year	Cash Flow
1		$	1,470
2			1,585
3			?
4			2,180

Answer 1

Present value of cash flows=cash flows*Present value of discounting factor(rate%,time period)

5821.86=1470/1.045+1585/1.045^2+Year 3 cash flow/1.045^3+2180/1.045^4

5821.86=4686.194266+Year 3 cash flow/1.045^3

Year 3 cash flow=(5821.86-4686.194266)*1.045^3

which is equal to

=$1295.98(Approx).