Question

An investment will pay $150at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5,and $500 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value

Answer 1

Answer:

Total PV= $976.6  

Explanation:

Giving the following information:

Cash flows:

Cf1 to 3= $150

Cf4= $250

Cf5= $300

Cf6= $500

Discount rate= 11%

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

PV= Cf*(1+i)^n

Cf1= 150/1.11= 135.14

Cf2= 150/1.11^2= 121.74

Cf3= 150/1.11^3= 109.68

Cf4= 250/1.11^4= 164.68

Cf5= 300/1.11^5= 178.04

Cf6= 500/1.11^6= 267.32

Total PV= $976.6