What is the present value of the following set of cash flows at an interest rate of 7 percent; $1,000 today, $2,000 at end of year one, $4,000 at end of year three, and $6,000 at end of year five? A)$9,731 B)$10,412 C)$10,524 D)$11,524 PV = $1,000/(1.07)⁰ + $2,000/(1.07)¹ = $4,000/(1.07)³ + $6,000/(1.07)⁵ = $1,000 + 1,869.16 + 3,265.19 + 4,277.92

Question

Quizplus · Accepted Answer

The present value of the cash flows can be calculated by discounting each cash flow back to the present using the given interest rate. Using the formula for present value of an annuity and present value of a single sum, we get:

PV = $1,000 + $2,000/(1.07) + $4,000/(1.07)^3 + $6,000/(1.07)^5
PV = $1,000 + $1,869.16 + $3,265.19 + $4,277.92
PV = $10,412

Therefore, the present value of the cash flows is $10,412. The best choice is option B.

What Is the Present Value of the Following Set of Cash