The present value of the following cash flows is known to be $6,939.91; $500 today, $2,000 in one year, and $5,000 in two years.What discount rate is being used? A)3 percent B)4 percent C)5 percent D)6 percent $6,939.91 = $500/(1 + i)⁰ + $2,000/(1 + i)¹ + $5,000/(1 + i)²

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Quizplus · Accepted Answer

To find out what discount rate is being used, we can solve the equation given in the problem using different discount rates until we get a present value close to $6,939.91. Using a financial calculator or spreadsheet software, we can try different discount rates until we find that a rate of 5 percent gives us a present value of $6,939.91, which is the known present value of the cash flows. Therefore, the discount rate being used is 5 percent, and the correct choice is C).

The Present Value of the Following Cash Flows Is Known