Expected cash flow from security $1000. What is the present value of expected cash flow (15% discount rate)? Please explain how to figure it.
Thank you so much.
To calculate the present value of expected cash flow, you need to discount the future cash flow by the discount rate. In this case, the discount rate is 15%.
The formula to calculate the present value of expected cash flow is as follows:
Present Value = Cash Flow / (1 + Discount Rate)^n
Where:
- Cash Flow is the expected cash flow amount ($1000 in this case)
- Discount Rate is the discount rate (15% in this case)
- n is the number of time periods for which the cash flow is expected
For this particular question, if you want to find the present value of the expected cash flow, assuming it is a one-time payment, then n would be 1.
Using the formula, we can calculate the present value as follows:
Present Value = $1000 / (1 + 0.15)^1
= $1000 / 1.15
≈ $869.57
Therefore, the present value of the expected cash flow, assuming a discount rate of 15%, is approximately $869.57.