Question

If the appropriate interest rate is 8 percent, what is the present value of the following cash flow stream (round your answer to the nearest whole dollar, no cents i.e. xxx)? Year 1 - $100 Year 2 - $400 Year 3 - $400 Year 4 - $300

Answer 1

The present value of the cash flow stream is $1,003.

Step-by-step explanation:

The present value of the cash flow stream can be calculated by discounting each future cash flow to its present value and summing them up. Using the appropriate interest rate of 8 percent, we can calculate the present value as follows:

1. Year 1: $100/(1 + 0.08) = $92
2. Year 2: $400/(1 + 0.08)^2 = $340
3. Year 3: $400/(1 + 0.08)^3 = $314
4. Year 4: $300/(1 + 0.08)^4 = $257

Adding up these present values, the total present value of the cash flow stream is $92 + $340 + $314 + $257 = $1,003.