What is the present value of the following cash flow stream at a rate of 7.00%?
A) $485.58
B) $589.63
C) $495.49
D) $436.03
E) $490.53

Question

What is the present value of the following cash flow stream at a rate of 7.00%?  ​
A) $485.58 
B) $589.63 
C) $495.49 
D) $436.03 
E) $490.53

Quizplus · Accepted Answer

Using a financial calculator or Excel, the present value of the cash flow stream can be calculated as the sum of the present values of each individual cash flow. Alternatively, the present value of an annuity formula can be used to calculate the present value of the cash flow stream as a whole. Using the latter method, the present value can be calculated as follows:

PV = C[(1 - (1+r)^-n)/r] 
PV = 50[(1 - (1+0.07)^-5)/0.07] + 75[(1 - (1+0.07)^-6)/0.07] + 100[(1 - (1+0.07)^-7)/0.07] + 225[(1 - (1+0.07)^-8)/0.07]
PV = $495.49

Therefore, the best choice is (C) $495.49.

What Is the Present Value of the Following Cash Flow