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25 June, 11:20

1. Calculate the present value (PV) of a cash inflow of $500 in one year, and a cash inflow of $1,000 in 5 years, assuming a discount rate of 15%.

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  1. 25 June, 11:28
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    The present value of $500 in one year is $434.78 and the present value of $1,000 in 5 years is $497.18

    Explanation:

    Hi, we need to use the following formula

    Present Value = Future Value / (1+Discount Rate) ^years

    Therefore, in the case of $500 in one year.

    Present Value = $500 / (1+0.15) ^1 = $434.78

    And for $1,000 in 5 years

    Present Value = $1,000 / (1+0.15) ^5 = $497.18

    Notice that the discount rate (15%) has to be used in its decimal form, that is 0.15 (which you can get by dividing 15/100).

    Best of luck.

    Best of luck
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