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17 August, 20:23

An investment will pay $200 at the end the year, $250 at the end of the next year, $400 at the end of the third year, and $500 at the end of the 4th year. Other investments of equal risk earn 6%. How much is this investment worth today

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  1. 17 August, 21:32
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    PV = $1,143.03

    Explanation:

    Giving the following information:

    An investment will pay $200 at the end of the year, $250 at the end of the next year, $400 at the end of the third year, and $500 at the end of the 4th year. Other investments of equal risk earn 6%.

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

    PV = FV / (1+i) ^n

    Cf1 = 200/1.06 = 188.68

    Cf2 = 250/1.06^2 = 222.50

    Cf3 = 400/1.06^3 = 335.85

    Cf4 = 500/1.06^4 = 396

    PV = $1,143.03
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