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an investment is expected to yield $300 in three years, $500 in five years, and $300 in seven years. what is the present value of this investment if our opportunity rate is 5%? group of answer choices $864 $885 $900 $735



Answer :

The total present value will be $864

The given cash flows are in alternate years, which can be specified as -

Cf3= $300

Cf5= $500

Cf7= $300

The rate of opportunity is 5%

Therefore,

Calculating the total present value, by each cash flow -

PV= FV/(1+i)^n

Substituting the values as cf3, cf5 and cf7

PV1

= 300/(1.05)³

= 259.15

PV2

= 500/(1.05^5)

= 391.76

PV3= 300/(1.05^7)

= 213.20

Total PV = PV1 + PV2 + PV3

= 259.15 + 391.76 + 213.20

= 864.11

The total present value will be $864

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