Amount of the promised cash flow


Problem:

The promised cash flows from a three-year investment security are $5,000 in Year 1 and $5,600 in Year 3. The cash flow in Year 2 is unknown. The price of this security is $12,515.94.

Required:

Question: If the required rate of return is 12% per year, what must be the amount of the promised cash flow in Year 2?

  1. $4,000
  2. $4,066
  3. $5,100
  4. $5,300
  5. $3,241

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Finance Basics: Amount of the promised cash flow
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