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Question

Click here to read the eBook: Future Values Click here to read the eBook: Present Values PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM O An investment will pay $150 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. a. If other investments of equal risk earn 12% annually, what is its present value? Round your answer to the nearest cent. b. If Other investme nts of equal risk earn 12% annually, what is its future value? Round your answer to the nearest cent. lcon Key MacBook Ai

Explanation / Answer

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=150/1.12+150/1.12^2+150/1.12^3+200/1.12^4+300/1.12^5+500/1.12^6

which is equal to

=$910.92(Approx).

2.

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence

A=$910.92*(1.12)^6

=$910.92*1.973822685

which is equal to

=$1798(Approx).

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