What is the present value of a future income stream of three $12,000 payments to be received one, two, and three years from today if the interest rate is 2.8 percent?

Question

Quizplus · Accepted Answer

The present value (PV) of a future income stream can be calculated using the formula PV = P / (1 + r)^n, where P is the payment, r is the interest rate, and n is the number of periods. For each of the three $12,000 payments, the present value is calculated as follows:1st year: PV = $12,000 / (1 + 0.028)^1 = $11,673.312nd year: PV = $12,000 / (1 + 0.028)^2 = $11,354.213rd year: PV = $12,000 / (1 + 0.028)^3 = $11,046.79Adding these together gives the total present value: $11,673.31 + $11,354.21 + $11,046.79 = $34,074.31, which rounds to $34,074.

What Is the Present Value of a Future Income Stream