Question

1. What is the future value of 17 periodic payments of $8,690 each made at the end of each period and compounded at 10%?

2. What is the present value of $8,690 to be received at the end of each of 18 periods, discounted at 5% compound interest?

Answer 1

1.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=$8690(1.1)^16+$8690(1.1)^15+...........+$8690(1.1)^1+$8690

=$8690[(1.1)^16+(1.1)^15+...............+(1.1)^1+1]

=$8690*40.54470285

which is equal to

=$352,333.47(approx).

b.

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

=8690/1.05+8690/1.05^2+...........+8690/1.05^18

=8690[1/1.05+1/1.05^2+............+1/1.05^18]

=8690*11.6895869

which is equal to

=$101,582.51(approx).

[Please note that intermediate calculations have not been rounded off].