Question

Suppose that a risk-free investment will make three future payments of $250 in one year, $250 in two years, and $250 in three years

Answer 1

Missing part of the question: If the risk-free interest rate is 8%, what is the current value of the investment?

Solution:
PV = FV/(1+r)^n, PV = Present value, FV = Future value, r = interest rate, n = number of years

Therefore,
PV = 250/(1+0.08)^1 + 250/(1+0.08)^2 + 250/(1+0.08)^3 = $644.27