You have just received a windfall from an investment you made in a friend\'s bus

Question

You have just received a windfall from an investment you made in a friend's business. She will be paying you $33,912 at the end of this year, $67,824 at the end of next year, and $101,736 at the end of the year after that (three years from today) The interest rate is 48% per year a. What is the present value of your windfall? b. What is the future value of your windfall in three years (on the date of the last payment)? a. What is the present value of your windfall? The present value of your windfall is (Round to the nearest dollar) The future value of your windfall in three years is s (Round to the nearest dollar.)

Explanation / Answer

Answer a.

Amount received in 1 year = $33,912
Amount received in 2 years = $67,824
Amount received in 3 years = $101,736

Annual Interest Rate = 4.80%

Present Value = $33,912 / 1.048 + $67,824 / 1.048^2 + $101,736 / 1.048^3
Present Value = $182,500

Answer b.

Amount received in 1 year = $33,912
Amount received in 2 years = $67,824
Amount received in 3 years = $101,736

Annual Interest Rate = 4.80%

Future Value = $33,912 * 1.048^2 + $67,824 * 1.048 + $101,736
Future Value = $210,061

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