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What is the aggregate present value of $500 received at the end of each of the next three years, assuming a discount rate of (i) 4 percent? (ii) 25 percent?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

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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 aggregate present value of $500 received at the end of each of the next three years, assuming a discount rate of (i) 4 percent? (ii) 25 percent?

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