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?

Question

Quizplus · Accepted Answer

The present value of the cash flows is $276.65. This is calculated by taking the sum of the present values of each cash flow. The present value of the $100 cash flow in one year is $95.24 (100 / (1 + 0.05)^1). The present value of the $200 cash flow in two years is $181.41 (200 / (1 + 0.05)^2). The sum of these present values is $276.65.

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