Exercise 1 You have just received a windfall from an investment you made in a f

Question

Exercise 1 You have just received a windfall from an investment you made in a f He will be paying you $10,000 at the end of this year, $20,000 at the end of the following year, and $30,000 at the end of the year after that (three years from today). The interest rate is 3.5% per year. iend's business. Interest Rate: 3.50% Year Cash flow: a. What is the present value of your windfall? si 0,000.00lS20,000.00 530,000.00 Present Value Using formulas b. What is the future value of your windfall in three years (on the date of the last payment)? Future Value Using formulas

Explanation / Answer

Year

Cash inflow

PV factor @ 3.5%

PV factor

PV of cash inflow

1

10000

1/(1+0.035)^1

0.966183575

9,661.83575

2

20000

1/(1+0.035)^2

0.9335107

18,670.21401

3

30000

1/(1+0.035)^3

0.901942706

27,058.28117

Total

55390.33

PV

PV of amount = Amount/(1+ interest rate)n

PV of amount = Amount*(1+ interest rate)n

FV

Year

Cash inflow

FV factor @ 3.5%

PV factor

PV of cash inflow

1

10000

1/(1+0.035)^2

0.93351

9,335.10700

2

20000

1/(1+0.035)^1

0.96618

19,323.67150

3

30000

30,000.00000

Total

58658.7785

Year

Cash inflow

PV factor @ 3.5%

PV factor

PV of cash inflow

1

10000

1/(1+0.035)^1

0.966183575

9,661.83575

2

20000

1/(1+0.035)^2

0.9335107

18,670.21401

3

30000

1/(1+0.035)^3

0.901942706

27,058.28117

Total

55390.33

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