Question

What is the present value of receiving $450 in 9 years if you expect a rate...

What is the present value of receiving $450 in 9 years if you expect a rate of return of 8% a year?

a.$1,351

b.$2,811

c.$900

d.$1,974

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Answer #1
Ans. Option b $2,811 (rounded)
Present value of cash inflow = Annual cash inflows * Present value of an annuity of 8 years
$450 * 6.24689
2811.1005
*Calculation of P V @ 8%
Year P V @ 8%
1 1 / (1 + 0.08)^1 0.92593
2 1 / (1 + 0.08)^2 0.85734
3 1 / (1 + 0.08)^3 0.79383
4 1 / (1 + 0.08)^4 0.73503
5 1 / (1 + 0.08)^5 0.68058
6 1 / (1 + 0.08)^6 0.63017
7 1 / (1 + 0.08)^7 0.58349
8 1 / (1 + 0.08)^8 0.54027
9 1 / (1 + 0.08)^9 0.50025
Total of P v of an annuity 6.24689
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