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

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)