Question

Your grandmother promised to give you $100 today and $100 a year from now, 2 years from now, 3 years from now, 4 years from now, and 5 years from now. Given that the current interest rate is 3% compounded annually, what is the present value of this stream of cash flows?

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=100+100/1.03+100/1.03^2+100/1.03^3+100/1.03^4+100/1.03^5

which is equal to

=$557.97(Approx).