Consider a fixed-payment security that pays $100 at the end of every year for three years.If the annual rate of discount is 10 percent, the present value of the security is
A)$24.87.
B)$248.69.
C)$294.10.
D)$1,000.00.

Question

Quizplus · Accepted Answer

The present value of a fixed-payment security can be calculated as:

PV = Payment/(1 + r)^n

Where PV is the present value, Payment is the amount paid each period, r is the annual rate of discount, and n is the number of periods.

In this case, Payment = $100, r = 0.10 (10% as a decimal), and n = 3. Plugging these values into the equation, we get:

PV = $100/(1 + 0.10)^1 + $100/(1 + 0.10)^2 + $100/(1 + 0.10)^3
PV = $90.91 + $82.64 + $75.13
PV = $248.69

Therefore, the present value of the security is $248.69, which is closest to answer choice B.

Consider a Fixed-Payment Security That Pays $100 at the End