If you are to receive a payment of $200 at the end of the first year and a payment of $250 at the end of the second year at a market interest rate of 5 percent,the present value of this income stream is _____

Question

Quizplus · Accepted Answer

To find the present value of the income stream, we need to discount each future payment back to its present value using the market interest rate.

PV(year 1 payment) = $200 / (1 + 0.05)^1 = $190.48 
PV(year 2 payment) = $250 / (1 + 0.05)^2 = $222.75

The total present value is the sum of these two discounted payments:

PV(total) = $190.48 + $222.75 = $413.23

Therefore, the answer is B, $417.23.

If You Are to Receive a Payment of $200 at the End