(1) Consider an investment that pays $200 one year from now, with cash flows increasing by $200 per year through year 4. If the interest rate is 12%, what is the present value of this stream of cash flows? Solution Calculation of Present value using the Formula : Present value = Future value *PVF r = rate of interest = 12% = 0.12 Year Cash flows PVF PV A Calcu. B C =A*B 1 200 1/(1+0.12)^1            0.89286           178.57 2 400 1/(1+0.12)^2            0.79719           318.88 3 600 1/(1+0.12)^3            0.71178           427.07 4 800 1/(1+0.12)^4            0.63552           508.41 Present value of this stream of cash flows        1,432.93 .