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You compute the present value of a group of complicated cash-flows in multiple periods (say ‘CF’),...

You compute the present value of a group of complicated cash-flows in multiple periods (say ‘CF’), and the present value turns out $400,000. Now you realize you computed it once 5 years ago. That is, you computed the present value ‘CF’ assuming “5 years ago” as “today”. What was the present value you computed 5 years ago? Assume the interest and discount rate is 2% per year, compounding annually.

1. $354,292.32

2. $356,292.32

3. $358,292.32

4. $360,292.32

5. $362,292.32

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Answer #1

To find the correct Present value of the sum $400,000 we will now assume it to be future value, now the correct present value can be calculated using the PV function in excel:

=PV(2%,5,,400000)

=$362,292.32

The correct answer is 5.

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