Question

In: Finance

A security will pay $300 in one year and $700 in two years. Ifthe appropriate...

A security will pay $300 in one year and $700 in two years. If the appropriate discount rate is 9.1% per year, what is the value of the security today?

Question 11 options:


1)$863.07

2)$856.98

3)$852.41

4)$873.48

5)$841.16

Solutions

Expert Solution

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

  • Press the CF button.
  • CF0= -$0.
  • Cash flow for all the years should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow, press the NPV button and enter the discount rate of 9.1%.
  • Press the down arrow and CPT buttons to get the net present value.  

Net Present value of cash flows at 9.1% the discount rate is $863.07.

Hence, the answer is option 1.


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