An investment will pay you $100 in one year and $200 in two years.If the interest rate is 5%,what is the present value of these cash flows?
A)$305.00
B)$285.71
C)$276.65
D)258.32

Question

Quizplus · Accepted Answer

The present value (PV) of future cash flows is calculated using the formula: PV = CF / (1 + r)^n, where CF is the cash flow, r is the interest rate, and n is the number of years. For $100 in one year: PV = 100 / (1 + 0.05)^1 = $95.24. For $200 in two years: PV = 200 / (1 + 0.05)^2 = $181.41. Adding these gives a total present value of $276.65.

An Investment Will Pay You $100 in One Year and $200