If you have an investment that will receive $100 at the end of year one,$200 at the end of year two,and $300 at the end of year three,what is the market value of this investment today if the discount rate is 13 percent annually?
A)$553
B)$453
C)$423
D)$383

Question

Quizplus · Accepted Answer

To calculate the market value of the investment today, we need to discount each future cash flow to its present value using the given discount rate of 13%. We can use the present value formula for each cash flow:
PV = CF/(1+r)^n
where, PV is the present value, CF is the future cash flow, r is the discount rate, and n is the number of years.

PV of $100 at the end of year one:
PV = 100/(1+0.13)^1 = 88.50

PV of $200 at the end of year two:
PV = 200/(1+0.13)^2 = 137.81

PV of $300 at the end of year three:
PV = 300/(1+0.13)^3 = 226.78

Therefore, the total market value of the investment today is the sum of the present values of all cash flows:
Market Value = 88.50 + 137.81 + 226.78 = $453.09, which is closest to option B ($453).

If You Have an Investment That Will Receive $100 at the End