Calculate the amount today that is equivalent to $150 at the end of year 1, $450 at the end of year 2, and $300 at the end of year 3, given a discount rate of 10%.
A)$695
B)$710
C)$755
D)$734
E)$1,100

Question

Quizplus · Accepted Answer

We need to calculate the present value of each amount and then sum them up. Using the formula to calculate the present value of a future amount:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

PV(Y1) = $150 / (1 + 0.1)^1 = $136.36
PV(Y2) = $450 / (1 + 0.1)^2 = $330.58
PV(Y3) = $300 / (1 + 0.1)^3 = $220.47

Therefore, the total present value is:
PV(total) = $136.36 + $330.58 + $220.47 = $687.41

The closest answer choice to this amount is D) $734, which is the best choice.

Calculate the Amount Today That Is Equivalent to $150 at the End