With an interest rate of 10 percent,the present value of a security that pays $1,100 next year and $1,460 four years from now is approximately
A) $1,000.
B) $2,000.
C) $2,560.
D) $3,000.

Question

Quizplus · Accepted Answer

The present value (PV) of future cash flows is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. For the $1,100 payment next year, PV = $1,100 / (1 + 0.10)^1 = $1,000. For the $1,460 payment four years from now, PV = $1,460 / (1 + 0.10)^4 ≈ $1,000. Adding these together gives approximately $2,000.

With an Interest Rate of 10 Percent,the Present Value of a Security