What is the approximate present value of a future income stream of three $1,000 payments to be received one, two, and three years from today if the interest rate is 6.75 percent?

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Quizplus · Accepted Answer

The present value (PV) of a future income stream can be calculated using the formula: PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. For each $1,000 payment:- Year 1: PV = $1,000 / (1 + 0.0675)^1 = $937.22- Year 2: PV = $1,000 / (1 + 0.0675)^2 = $877.97- Year 3: PV = $1,000 / (1 + 0.0675)^3 = $822.70Adding these together: $937.22 + $877.97 + $822.70 = $2,637.89, which is approximately $2,636 when rounded to the nearest whole number.

What Is the Approximate Present Value of a Future Income