An investment pays $400 in one year,X amount of dollars in two years,and $500 in three years. The total present value of all the cash flows (including X)is equal to $1,500. If i is 6 percent,what is X?
A)$749.67
B)$789.70
C)$600.00
D)$822.41
E)$702.83

Question

Quizplus · Accepted Answer

To find the value of X, we need to use the present value formula:
PV = CF1 / (1+i)^1 + CF2 / (1+i)^2 + CF3 / (1+i)^3

where PV is the total present value, CF is the cash flow at each time period, and i is the interest rate.

Substituting the given values, we get:

1500 = 400 / (1+0.06)^1 + X / (1+0.06)^2 + 500 / (1+0.06)^3

Solving for X, we get:

X = (1500 - 400 / (1+0.06)^1 - 500 / (1+0.06)^3) * (1+0.06)^2

X = $789.70

Therefore, the best choice is B, $789.70.

An Investment Pays $400 in One Year,X Amount of Dollars