You have just received year, and $104,730 at the end of the year after that thre

Question

You have just received year, and $104,730 at the end of the year after that three years from today). The interest rate is 12.8% 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 windfall from an investment you made in a friend's business. She will be paying you $34,910 at the end of this year, $69,820 at the end of next a. What is the present value of your windfall? The present value of your windfall is S. (Round to the nearest dolar.) b. What is the future value of your windfall in three yoars (on the date of the last payment)? The future value of your windfall in three years is s (Round to the nearest dollar.)

Explanation / Answer

a)

Present value = 34,910 / ( 1 + 0.128)1 + 69,820 / ( 1 + 0.128)2 + 104,730 / ( 1 + 0.128)3

Present value = 30,948.58 + 54,873.37 + 72,969.91

Present value = $158.792

b)

Future value of year 1 cash flow = 34,910 ( 1 + 0.128)2 = 44,418.93

Future value of year 2 cash flow = 69,820 ( 1 + 0.128)1 = 78,756.96

Future value of year 3 cash flow = 104,730 ( 1 + 0.128)0 = 104,730

Future value = 104,730 + 78,756.96 + 44,418.93

Future value = $227,906

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