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What is the present value of an investment that yields $500 to be received in 5...

What is the present value of an investment that yields $500 to be received in 5 years and $1,000 to be received in 10 years if the discount rate is 4 percent?

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Answer #1

The present value is the current value of a sum of money to be received in the future. It is calculated by discounting the cash flows at a discount rate. Higher the discount rate, lower the present value of cash flows.

​Present Value = Future Value(1+r)^n

r=Rate of return

n=Number of periods​

Calculating the present value of an investment given in the question,

Cash inflow in year 5 = $500

Cash inflow in year 10 = $1000

r = 4%

PV =   

PV =

PV = 411 + 676 = $1087

Hence, Present value of future cash flows is $1087

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