If the interest rate is 10 percent 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 (PV) is calculated using the formula PV = CF1/(1+r)^1 + CF2/(1+r)^2. For CF1 = $1,000 and CF2 = $2,000 with r = 10%: PV = $1,000/(1+0.10)^1 + $2,000/(1+0.10)^2 = $909.09 + $1,652.89 = $2,561.98, which rounds to $2,562.

If the Interest Rate Is 10 Percent and Cash Flows