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Compute the present value of $1,150 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year.

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Answer:

$938.82

Explanation:

The present value of the amount $1,150 using different discount rates in year one, two and three shall be determined using following mentioned method:

Present value of $1150 at the end of year 2=$1,150(1+8%)^-1=$1064.81

Present value of $1150 at the end of year 1=$1064.81(1+7%)^-1=

Present value of $1150 at the end of year 0=$995.15(1+6%)^-1=$938.82

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