Consider the following timeline detailing a stream of cash flows:
If the current market rate of interest is 8%,then the present value (PV)of this stream of cash flows is closest to:
A)$22,871
B)$21,211
C)$24,074
D)$26,000

Question

Consider the following timeline detailing a stream of cash flows: 
If the current market rate of interest is 8%,then the present value (PV)of this stream of cash flows is closest to:
A)$22,871 
B)$21,211 
C)$24,074 
D)$26,000

Quizplus · Accepted Answer

To find the present value (PV) of the stream of cash flows, we need to discount each cash flow back to its present value using the market rate of interest of 8%. Using the PV formula, we get:

PV = 10,000/(1+0.08)^1 + 6,000/(1+0.08)^2 + 5,000/(1+0.08)^3 + 4,000/(1+0.08)^4

PV = 9,259.26 + 5,249.81 + 3,732.24 + 2,705.15

PV = $21,211.46

Therefore, the best choice is B.

Consider the Following Timeline Detailing a Stream of Cash Flows