If you have an investment that will receive $100 at the end of year one, $200 at the end of year two, and $300 at the end of year three, what is the market value of this investment today if the discount rate is 13 percent annually?
A)$553
B)$453
C)$753
D)$653

Question

Quizplus · Accepted Answer

We can calculate present value of each cash flow and then add them up to get the market value today.
PV of $100 at the end of year one = $100/(1 + 0.13)^1 = $88.50
PV of $200 at the end of year two = $200/(1 + 0.13)^2 = $142.11
PV of $300 at the end of year three = $300/(1 + 0.13)^3 = $183.68
Market value today = $88.50 + $142.11 + $183.68 = $414.29
Therefore, the best choice is B.

If You Have an Investment That Will Receive $100 at the End