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hat is the future value (as at year 3) of the following cash flows, given an interest rate of 5% p.a.? Year 1 Cash flow $160 $340 a. $508 b. $525 O c. $543 d. $533

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 7PROB

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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What is the future value (as at year 3) of the following cash flows, given an interest rate of 5% p.a.?
Year
1
3
Cash flow
$160
$340
a. $508
O b. $525
О с. $543
d. $533

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