lomework: Chapter 3 Graded Homework Save 4 of 15 (3 complete) Hw Score: 13.33%,

Question

lomework: Chapter 3 Graded Homework Save 4 of 15 (3 complete) Hw Score: 13.33%, 2 of 15 pts core: 0 of 1 pt roblem 3.LO2.3 (similar to) For the following mixed stream of cash flows, determine the future value at the end of the final year if deposits are made at the beginning of each year into an account i Question Help * paying annual interest of 7%, assuming no withdrawals are made during the period. Cash Flow Stream Year 15,000 9.100 7,100 Cash Flow Stream Year 15,000 9,100 7,100 Future Value (S) (Round to the nearest cent)

Explanation / Answer

Solution:-

Problem 3.LO2.3:- Calculation of future value at the end of the final year .

            Future value can be calculated as follows:-

                        Future Value= CF1*(1+i)^3+CF2*(1+i)^2+CF3*(1+i)

Where

            CF1= cash flow at the year 1 beginning =15,000

            CF2= cash flow at the year 2 beginning =9,100

            CF3= cash flow at the year 3beginning =7,100

            i=annual interest =7%

Now substituting the values we get :-

            Future value of deposit

                        = 15000*(1+0.07)^3+9100*(1+0.07)^2+7100*(1+0.07)

                        =18,375.645+10,418.59+7597

                        =$36,391.24

Hence the future value of deposit= $36,391.24

Problem3.LO2.2:- calculation of future value for each case .

            Future value = Initial deposit*(1+i)^n

            Where i=periodic interest rate

            n=total number of compounding period

Substituting the values of each deposit we get,

i) Future value= $400*(1+0.16)6 =$974.59

ii)Future value=$200*(1+0.09/2)(21*2)=$200*(1+0.045)42 =$1270.32

iii)Future value= $500*(1+0.07/12)(3*12)= $500*(1+0.00583333)36 =$616.46       

Problem 3.LO2.5 :- Calculation of annual average compound growth rate over the period

The growth rate can be calculate by following formula

Index level in1990*(1+g)years = Index level in 2010

Substituting the values we get

            2,004*(1+g)20 = 4,690

                        (1+g)20 =4690/2,004

                        1+g =(2.340319)(1/20)

                                   g= 1.043431-1

                        g=4.3431% ie 4.34%

Hence the average growth rate is 4.34%

Please feel free to ask if you have any query in the comment section.

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