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20 April, 01:25

What is the present value of the following cash-flow stream if the interest rate is 5%

Year Cash Flow

1 $ 190

2 390

3 290

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Answers (1)
  1. 20 April, 02:48
    0
    The present value of the cash flows is $ 786.

    Explanation:

    This problem requires us to calculate present value of cash flows given in the question. The present value can be calculated by discounting cash flows using interest rate (5%) as discount factor.

    PV = (190 * (1+5%) ^-1) + (390 * (1+5%) ^-2) + (290 * (1+5%) ^-3)

    PV = 181 + 354 + 251

    PV = $ 786

    (Discount factor = CF (1+interest rate) ^-period)
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