The present value of the following cash flow stream is $7151.29 when discounted at 11 percent annually. What is the value of the missing cash flow? year cashflow
1 $2000
2 ?
3 $1750
4 $1250

The value of the missing cash flow is $4000.

Explanation:

The present value of a stream of cash flows can be calculated using the following formula for present value.

Present Value = Cash Flow 1 / (1+r)  +  Cash Flow 2 / (1+r)^2  +  ...  +  Cash Flow N / (1+r)^N

Where,

As we already know the present value and the other cash flow, we will plug in these values in the formula to calculate the missing cash flow.

Let the missing cash flow be x.

7151.29  =  2000 / (1+0.11)  +  x / (1+0.11)^2  +  1750 / (1+0.11)^3  +

1250 / (1+0.11)^4

7151.29  =  1801.801802  +  x / (1+0.11)^2  +  1279.584917  +  823.4137177

7151.29 - 3904.800437  =  x / (1.11)^2

3246.489563  *  (1.11)^2  =  x

x  =  $3999.999791 rounded off to $4000

Thus the value of the missing cash flow is $4000.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.