Suppose an investment will yield $1, 000 after one year and $2, 000 after two years.What is the present value of this investment if the discount rate is 8 percent?

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an investment:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

For the first year, we have:

PV1 = 1000 / (1 + 0.08)^1
PV1 = 925.93

For the second year, we have:

PV2 = 2000 / (1 + 0.08)^2
PV2 = 1695.67

The total present value of the investment is the sum of the present values of the two cash flows:

PV = PV1 + PV2
PV = 925.93 + 1695.67
PV = 2621.60

Therefore, the best choice is B with the answer 2,640.60.

Suppose an Investment Will Yield $1, 000 After One Year