You receive $1,000 in 1 year,$1,200 in 2 years,and $1,300 in 3 years.The present value today of these future receipts is ________ if the opportunity cost is 7 percent.
A)$2,500
B)$3,044
C)$4,036
D)$3,257

Question

Quizplus · Accepted Answer

We can use the formula for present value of an annuity to calculate the present value of the three receipts:

PV = (1000/(1+0.07)^1) + (1200/(1+0.07)^2) + (1300/(1+0.07)^3)
PV = 931.96 + 1064.07 + 1049.79
PV = 3,045.82

Therefore, the present value today is $3,045.82, which is closest to option B, $3,044.

You Receive $1,000 in 1 Year,$1,200 in 2 Years,and $1,300