If the interest rate is 10% and cash flows are $1,000 at the end of year one and $2,000 at the end of year two, then the present value of these cash flows is
A)$2,562.
B)$3,200.
C)$439.
D)$3,000.

Question

Quizplus · Accepted Answer

The present value is calculated by discounting each cash flow back to the present using the formula PV = CF / (1 + r)^n. For year one: $1,000 / (1 + 0.10)^1 = $909.09. For year two: $2,000 / (1 + 0.10)^2 = $1,652.89. Adding these gives $2,561.98, which rounds to $2,562.

If the Interest Rate Is 10% and Cash Flows Are