An investment promises the following cash flow stream: $1,000 at Time 0; $2,000 at the end...
An investment promises the following cash flow stream: $1,000 at Time 0; $2,000 at the end of Year 1 (or at T=1); $3,000 at the end of Year 2; and $5,000 at the end of Year 3. At a discount rate of 10%, what is the present value of the cash flow stream? (sample answer: $1,300.25 or $1300.25)
Homework Answers
Present value = Future value / (1 + R)T
Present value of all the cash flows = [$1,000 /(1 + 0.10)0] + [$2,000 /(1 + 0.10)1] + [$3,000 /(1 + 0.10)2] + [$5,000 /(1 + 0.10)3]
Present value of all the cash flows = $1,000 + $1,818.18 + $2,479.34 + $3,756.57
Present value of all the cash flows = $9,054.09
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