What is the present value of $1.00 to be received three time periods from now if the time value of money is 0.10 per period?

In Table A at the end of the book, the 0.10 column and the line opposite n equal to 3 gives 0.7513. If you invest $0.7513 to earn 0.10 per year, after three years you will have $1.00. Thus, (1.10)⁻³ = 0.7513.

What is the present value of $100.00 to be received three time periods from now if the time value of money is 0.10? Since (1.10)

−3 = 0.7513, the present value of $100 is

If investors can earn 0.10 per period and can borrow at 0.10, then they are indifferent to $75.13 received at time 0 or $100 at time 3.

The present value of a series of cash flows is the sum of the present values of each of the components.

Transcribed Image Text:

PV = $100(0.7513) = $75.13.