Answer :
The present value of these cash flows at an interest rate of 7% is $10,412.3
What is Present value?
Present value is the concept that states an amount of money today is worth more than that same amount in the future.
In other words, money received in the future is not worth as much as an equal amount received today. Receiving $1,000 today is worth more than $1,000 five years from now.
Present value is important because it allows investors to compare values over time. PV can help investors assess future financial benefits of current assets or liabilities. Used in areas like financial modeling, stock valuation, and bond pricing, based on its future returns, investors can calculate present value.
What factors affect present value?
The major components that influence the present value are the interest rate, the period, and the cash flow. Investors should account for inflation by using the real rate of return (nominal interest rate the rate of inflation).
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