Question

Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,950, $2,150, $2,150, and $2,450, respectively. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

PV=

Answer 1

Step 1:

PV = Present value = ?

.

CF1 = Cash flow year 1 = 1950

CF2 = Cash flow year 2 = 2150

CF3 = Cash flow year 3 = 2150

CF4 = Cash flow year 4 = 2450

Rate = r = 7%

.

Step 2:

Formula:

PV = CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + CF4/(1+r)^4

.

Step 3:

PV = CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + CF4/(1+r)^4

PV = 1950/(1+7%)^1 + 2150/(1+7%)^2 + 2150/(1+7%)^3 + 2450/(1+7%)^4

PV = 1,822.4299 + 1,877.8933 + 1,755.0404 + 1,869.0933

PV = $7,324.4569

PV = $7,324.46