What is the present value of an investment that pays $400 at the end of three years and $700 at the end of 10 years if the discount rate is 5%?
A) $1,100.00
B) $675.30
C) $775.40
D) $424.60

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 discount rate, and n is the number of periods. For $400 in 3 years: PV = 400 / (1 + 0.05)^3 = $345.68. For $700 in 10 years: PV = 700 / (1 + 0.05)^10 = $429.72. Adding these gives a total PV of $775.40.

What Is the Present Value of an Investment That Pays