An investment pays $100 at the end of each of the three next years. No additional payments will ever be made. If the annual interest rate is 5 percent, the present value of the investment is approximately

Question

Quizplus · Accepted Answer

The present value (PV) of an investment is calculated using the formula: PV = C / (1 + r)^n, where C is the cash flow, r is the interest rate, and n is the period. Calculating for each year: PV = $100/(1.05)^1 + $100/(1.05)^2 + $100/(1.05)^3 = $95.24 + $90.70 + $86.38 = $272.32, approximately $272.

An Investment Pays $100 at the End of Each of the Three