Assume that a financial asset gives its owner the following cash flows which are

Question

Assume that a financial asset gives its owner the following cash flows which are invested using the compound interest method: year zero, 10960 dollars outflow; year one, 45177 dollars inflow; year two, 12836 dollars inflow; year three, 59854 dollars inflow; year four: 17447 dollars inflow. Given that the current yield required for similar financial assets is 5% per year, compute the value of this asset at time 3 taking into account past and future cash flows. (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)

Explanation / Answer

Year 0, cash outflow = $10960

Year 1, cash inflow = $45177

Year 2, cash inflow = $12836

Year 3, cash inflow = $59854

Year 4, cash inflow = $17447

R = 5%

Value of the asset in year 3 = -10960*(1+5%)^3 + 45177*(1+5%)^2 + 12836*(1+5%) + 59854 + 17447/(1+5%)

Value of the asset in year 3 = 127068.06

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