The present value of $1,000 received at the end of year 1, $1,200 received at the end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7 percent, is ________.
A) $2,500
B) $3,044
C) $6,516
D) $2,856

Question

Quizplus · Accepted Answer

We can calculate the present value of each of the cash flows and then add them up:

PV1 = 1,000/(1+0.07)^1 = $935.10
PV2 = 1,200/(1+0.07)^2 = $1,041.58
PV3 = 1,300/(1+0.07)^3 = $1,126.53

Total present value = PV1 + PV2 + PV3 = $935.10 + $1,041.58 + $1,126.53 = $3,044.21

So the answer is B, $3,044.

The Present Value of $1,000 Received at the End of Year