Question

1.Calculate the present value (PV ) of a cash inflow of $500 in one year, and a cash inflow of $1,000 in 5 years, assuming a discount rate of 15%.

Answer 1

Answer:

The present value of $500 in one year is $434.78 and the present value of $1,000 in 5 years is $497.18

Explanation:

Hi, we need to use the following formula

Present Value = Future Value/ (1+Discount Rate)^years

Therefore, in the case of $500 in one year.

Present Value = $500/(1+0.15)^1 = $434.78

And for $1,000 in 5 years

Present Value = $1,000/(1+0.15)^5 = $497.18

Notice that the discount rate (15%) has to be used in its decimal form, that is 0.15 (which you can get by dividing 15/100).

Best of luck.

Best of luck