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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Business

Snuffles

14 October, 09:12

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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Answers (1)

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Mckayla Arroyo · Answer 1

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