A cash flow of $200,000 may be received by Lydia Nickels, Inc. in one year, two years, or three years, with probabilities of 20%, 50%, and 30%, respectively. The rate of interest on default risk-free investments is 5%. The present value factors are
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|
PV of 1, at 5%, for 1 year is |
.95238 |
|
PV of 1, at 5%, for 2 years is |
.90703 |
|
PV of 1, at 5%, for 3 years is |
.86384 |
What is the expected present value of Lydia Nickels’ cash flow (in whole dollars)?
- $181,406
- $180,628
- $ 90,703
- $ 89,925