If the annual interest rate is 8 percent, an asset that promises to pay $160 after each of the next two years has a present value of

Question

Quizplus · Accepted Answer

We can use the present value formula:

PV = CF / (1 + r)^n

where PV is the present value, CF is the cash flow, r is the annual interest rate, and n is the number of years.

For the first $160 payment:

PV = $160 / (1 + 0.08)^1 = $148.15

For the second $160 payment:

PV = $160 / (1 + 0.08)^2 = $137.17

The total present value is:

PV = $148.15 + $137.17 = $285.32

Therefore, the correct choice is B.

If the Annual Interest Rate Is 8 Percent, an Asset