Question

Consider the following timeline: Date 0 1 2 3 -$150 $40 $80 $100 Cash flow If the current market rate of interest is 12%, then the value of the cash flows in year 0 and year 2 as of year 1 is closest to: O A. $171 B. $79 C. - $70 OD. - $79

Answer 1

Cuurent market rate = 12% Year 0 =-150 FV of the cash flow at the year ended 1 value = FV = PV *(1+r)^n FV =-150*(1+0.12)^1 =- 168.00 Year 2 = $80 Value at the end of year 1 = PV = FV/(1+r)^n PV = 80/(1+0.12)^1 = 71.42857 Total value for Yeard and Year 2 near to year 1 = -168+71.42857 =-96.57143 closest to -96.57143 in the given answer is -$79

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