Question

The value today of the following cash flows is $6,191.73 at an interest rate of 5.2 percent. What is the value of the Year 3 cash flow? Year Cash Flow 1 $ 1,575 2 1,725 3 ? 4 2,355 Multiple Choice $1,213.13 $1,412.39 $536.73 $3,767.67 $1,312.76

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

6,191.73=1,575/1.052+1,725/1.052^2+Cash flow for year 3/1.052^3+2,355/1.052^4

6,191.73=4978.603368+Cash flow for year 3/1.052^3

Cash flow for year 3=(6,191.73-4978.603368)*1.052^3

=$1412.39(Approx).