Consider the following timeline:
If the current market rate of interest is 8%,then the value of the cash flows as of year 1 is closest to:
A)$0
B)$1003
C)$540
D)$77

Name: Consider the following timeline: If the current market rate of interest is 8%,then the value of the cash flows as of year 1 is closest to: A)$0 B)$1003 C)$540 D)$77
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Question

Consider the following timeline: 
If the current market rate of interest is 8%,then the value of the cash flows as of year 1 is closest to:
A)$0 
B)$1003 
C)$540 
D)$77

Quizplus · Accepted Answer

D)Two part problem: FV = PV(1 + r)ⁿ = 500(1.08)¹ = $540 PV = FV/(1 + r)ⁿ = -500/(1.08)¹ = -$463 So the answer is $540 + -$463 = $77

Consider the Following Timeline