Question

You have just received a windfall from an investment you made in a​ friend's business. She will be paying you

$29,980

at the end of this​ year,

$59,960

at the end of next​year, and

$89,940

at the end of the year after that​ (three years from​ today). The interest rate is

13.6%

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)?

Answer 1

Answer : (a.) Calculation of Present Value of Windfall :

Below is the table showing calculation of Present Value :

Year	Cash Flows	PVF @ 13.6%	Present Value of Cash Flows
1	29980	0.88028169	26390.84507
2	59960	0.774895854	46462.75541
3	89940	0.682126632	61350.46929
		Present value of Cash Flows	134204.0698

(b.) Calculation of Future Value :

Below is the table showing Calculation of Future value :

Year	Cash Flow (1)	Future Value Factor @13.6% (2)	Future Value of Cash Flows (1) * (2)
1	29980	(1.136)^2	38689.07008
2	59960	(1.136)^1	68114.56
3	89940	1	89940
		Total	196743.6301