Consider the following timeline:
If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

Question

Consider the following timeline: 
If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

Quizplus · Accepted Answer

B) This is a two-part problem involving both present and future values.
FV of year 0 c/f = FV = PV(1 + r)ⁿ = -150(1.12)¹ = -$168
PV of year 2 c/f = PV = FV/(1 + r)ⁿ = 80/(1.12)¹ = $71.43
So, the answer is -$168 + $71.43 = -96.57

Consider the Following Timeline