4.2 NOTE: Please show all calculations (no Excel solutions please) to four decim

Question

4.2

NOTE: Please show all calculations (no Excel solutions please) to four decimal places if applicable: Assuming an 8% discount rate, what is the future value of the following cash flows?

a.

future value in 3 years of $50 received now

b.

future value in 100 years of $50 received now

c.

future value at the end of 20 years of $50 received each year at the end of the year

d.

future value at the end of 20 years of $50 received each year at the beginning of the year, again totaling 20 payments.

4.2

NOTE: Please show all calculations (no Excel solutions please) to four decimal places if applicable: Assuming an 8% discount rate, what is the future value of the following cash flows?

a.

future value in 3 years of $50 received now

b.

future value in 100 years of $50 received now

c.

future value at the end of 20 years of $50 received each year at the end of the year

d.

future value at the end of 20 years of $50 received each year at the beginning of the year, again totaling 20 payments.

Explanation / Answer

FV of Cash flow = PV*(1+i)^n where i is disc rate & n is period in years a. FV of CF = 50*(1+8%)^3 = $62.99 b. FV of CF = 50*(1+8%)^100 = $109,988.06 c. FV of annuity of n=20, PMT=$50 FVA = PMT(FVIFAi,n) = 50*(FVIFA8%,20) = 50*45.762 = $2,288.10 d. FV of annuity Due = (1+i)*PMT(FVIFAi,n) = 1.08*50*(FVIFA8%,20) =1.08*50*45.762 = $2,471.15

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