What is the present value of the following cash flow stream at an interest rate of 12.0% per year: $0 at Time 0; $1,500 at the end of Year 1; $3,000 at the end of Year 2; $4,500 at the end of Year 3; and $6,000 at the end of Year 4?
A)$10,209.64
B)$10,746.99
C)$11,284.34
D)$11,848.55

Question

Quizplus · Accepted Answer

Using the formula for the present value of an annuity: 
PV = C[(1-(1+r)^-n)/r], where C is the cash flow, r is the interest rate, and n is the number of periods.

PV of Year 1 cash flow = 1500/1.12 = $1,339.29
PV of Year 2 cash flow = 3000/(1.12)^2 = $2,382.35
PV of Year 3 cash flow = 4500/(1.12)^3 = $3,227.67
PV of Year 4 cash flow = 6000/(1.12)^4 = $4,797.67

Total PV = $1,339.29 + $2,382.35 + $3,227.67 + $4,797.67 = $10,746.99.

Therefore, the best choice is B.

What Is the Present Value of the Following Cash Flow