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Chapter 4: Q.14 (page 134)

If the interest rate is 15%, what is the present value of a security that pays you \(1,100 next year, \)1,250 the year after, and $1,347 the year after that?

Short Answer

Expert verified

The present value is $2787.38

Step by step solution

01

Step 1. Introduction

An interest rate indicates how much it costs to borrow money or how much it pays to save money. So, if you're a borrower, the interest rate is the cost of borrowing money expressed as a percentage of the entire loan amount.

02

Step 2. Explanation

ThePresentValueofSecurity=1100(1+0.15)+1250(1+0.15)^2+1347(1+0.15)^3=$2787.38

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