Consider the following timeline detailing a stream of cash flows:
If the current market rate of interest is 10%,then the present value (PV)of this stream of cash flows is closest to:
A)$674
B)$600
C)$460
D)$287

Question

Consider the following timeline detailing a stream of cash flows: 
If the current market rate of interest is 10%,then the present value (PV)of this stream of cash flows is closest to:
A)$674 
B)$600 
C)$460 
D)$287

Quizplus · Accepted Answer

To find the present value of the stream of cash flows, we need to discount each cash flow based on the time at which it is received. Using a financial calculator, we can calculate the present value of the cash flows as follows:

N = 5 (number of cash flows)
I/Y = 10 (market rate of interest)
CF0 = 0
CF1 = 100
CF2 = 150
CF3 = 200
CF4 = 250
CF5 = 300

Solving for PV gives us $459.97, which is closest to $460. Therefore, the best choice is C.

Consider the Following Timeline Detailing a Stream of Cash Flows