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12 January, 18:02

If the interest rate is 10%, what is the present value of a security that pays you $1,500 next year, $1,400 the year after, and $1,300 the year after that?

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  1. 12 January, 20:54
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    The present value is $3,497.3

    Explanation:

    In order to calculate the present value of a security that pays you $1,500 next year, $1,400 the year after, and $1,300 the year after we would have to make the following calculation:

    Present Value = payment next year x P/F (10%, 1) + payment the year after x P/F (10%, 2) + payment the year after that x P/F (10%, 3)

    Present Value = $1,500 x 0.9091 + $1,400 x 0.8264 + $1,300 x 0.7513

    Present Value = $1,363.65 + $1,156.96 + $976.69

    Present Value = $3,497.3

    The present value is $3,497.3
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