Calculate the amount to be received at the end of year 1 that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.
A)$807
B)$817
C)$887
D)$975
E)$1,331

Question

Quizplus · Accepted Answer

The present value of each cash flow is calculated and then summed up to find the equivalent amount at the end of year 1. The present value of $450 at the end of year 2 is $450 / (1+0.10)^1 = $409.09, and the present value of $300 at the end of year 3 is $300 / (1+0.10)^2 = $247.93. Adding these to the $150 at the end of year 1 gives $150 + $409.09 + $247.93 = $807.02, which rounds to $807.

Calculate the Amount to Be Received at the End of Year