What is the value in year 4 of a $9,000 cash flow made in year 13 if interest rates are 7 percent in years "4 through 9" and increase to 11 percent after that?
A) $4,226.99
B) $4,472.06
C) $4,698.17
D) $4,716.52

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the cash flow is $4,226.99. The present value is calculated by multiplying the cash flow by the present value factor. The present value factor is calculated by dividing 1 by (1 + r)^n, where r is the interest rate and n is the number of years. In this case, the interest rate is 7 percent for years 4 through 9 and 11 percent after that. The number of years is 13. So, the present value factor is 1 / (1 + 0.07)^9 * (1 + 0.11)^4 = 0.4703. The present value of the cash flow is $9,000 * 0.4703 = $4,226.99.

What Is the Value in Year 4 of a $9,000