An investment will pay you $150 in one year and $300 in two years. If the interest rate is 7.5%, what is the present value of these cash flows?
A)$385.71
B)$399.13
C)$385.00
D)$358.32

Question

Quizplus · Accepted Answer

Using the formula for present value of a future cash flow: PV = CF/(1+r)^n
PV1 = 150/(1+0.075)^1 = 139.53
PV2 = 300/(1+0.075)^2 = 259.60
Total present value = PV1 + PV2 = 399.13

An Investment Will Pay You $150 in One Year and $300