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11 May, 12:32

If the current market rate of interest is 9%, then the present value (PV) of this stream of cash flows is closest to:

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  1. 11 May, 12:58
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    Consider the following timeline detailing a stream of cash flows:

    0 - ? 1-$100 2-$100 3-$200 4-$200

    If the current market rate of interest is 9%, then the present value (PV) of this stream of cash flows is closest to:

    This is the complete question that I found from the Internet

    The present value of this stream of cash flows is closest to 472.0329

    Explanation:

    In this question we are given different stream of cash flows from different years and have to discount is by 9%.

    The first years cash flow is 100 and we will divide by 1.09 to find its present value.

    The second years cash flow is 100 and we will divide it by 1.09^2 to find its present value.

    The third cash flow is 200 and we will divide it by 1.09^3 to find its present value.

    The fourth cash flow is 200 and we will divide it by 1.09^4 to find its present value.

    After this we will add all 4 of these up to find the present value of this stream of cash flows.

    100/1.09=91.74

    100/1.09^2=84.16

    200/1.09^3=154.43

    200/1.09^4=141.685

    91.74+84.16+154.43+141.685=472.0329
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