Question

You will purchase a financial paper in 2018 that will pay in 2018 that will pay $1000 starting from the year 2021for 4 years, and you can always generate 5.5% in the market each year.

what is the value of your investment at year 2023?

Answer 1

ANSWER -

Formula:

PV = C× [1-(1+r)^-n]/r

Explanation ;

PV = Present value (The cummulative amount available at Present), C= Periodic cash flow, r =effective interest rate for the period, n = number of periods.

PV = C× [1-(1+r)^-n]/r

PV = 1000× [1-(1+0.055)^-4]/0.055

= 3,505.15

PV at 2020 = 3,505.15

Process of calculating Future value (FV)

FV = present value(1+r)^n

PV at 2018 = 3,5050.15/(1.055)^2

PV at 2023 = 3,5050.15*(1.055)^5/(1.055)^2

=3,5050.15*(1.055)^3

= 4,115.89

The value of your investment at year 2023 is 4,115.89

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