Question

An investment will pay $100 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. If other investments of equal risk earn 10% annually, what is its present value? Round your answer to the nearest cent. If other investments of equal risk earn 10% annually, what is its future value? Round your answer to the nearest cent.

Answer 1

Present Value = Cash Flow in Year 1*1/(1+Rate of Interest)^1+ Cash Flow in Year 2*1/(1+Rate of Interest)^2+Cash Flow in Year 3*1/(1+Rate of Interest)^3+..................Cash Flow in Year 6*1/(1+Rate of Interest)^6

= 100*1/(1.10)^1+100*1/(1.10)^2+100*1/(1.10)^3+200*1/(1.1)^4+300*1/(1.1)^5+500*1/(1.1)^6

= $ 853.801252116071

= $ 853.80

Answer = $ 853.80

Future Value = Present Value * (1+Rate of interest)^time

= $ 853.801252116071 *(1+10%)^6

= $ 1,512.56

Answer =  $ 1,512.56