How much would you pay for a security that pays $150 at the end of each of the next three years plus another $500 at the end of the third year if the relevant interest rate is 9%?
A) $618
B) $628
C) $765
D) $950
E) None of the above

Question

Quizplus · Accepted Answer

The present value of the security is calculated by discounting each cash flow at the interest rate of 9%. The present value of the $150 payments for three years and the $500 payment at the end of the third year is approximately $765.

How Much Would You Pay for a Security That Pays