What is the present value of a cash flow of 200 to be received in 7 years at a 6% discount rate?

What is the present value of a cash flow of 200 to be received in 7 years at a 6% discount rate?

• A. 188.7
• B. 133.0
• C. 3,333.3
• D. 300.7

Answer: (B)

Time value of money: to find the present value of a future cash flow, discount it back at the given rate using PV = FV / (1 + r)^t. With a future amount of 200, a 6% rate, and 7 years, (1.06)^7 ≈ 1.50363, so PV ≈ 200 / 1.50363 ≈ 133.0. The other numbers come from misapplying the concept: 188.7 would require a smaller discount factor, 300.7 is the amount you'd have in the future (not present value), and 3,333.3 is not tied to this calculation.

Time value of money: to find the present value of a future cash flow, discount it back at the given rate using PV = FV / (1 + r)^t. With a future amount of 200, a 6% rate, and 7 years, (1.06)^7 ≈ 1.50363, so PV ≈ 200 / 1.50363 ≈ 133.0. The other numbers come from misapplying the concept: 188.7 would require a smaller discount factor, 300.7 is the amount you'd have in the future (not present value), and 3,333.3 is not tied to this calculation.