Question

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 $600 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent. Present value: Future value:

Answer 1

1)

Present value = Future value / (1 + rate)^time

Present value = 150 / (1 + 0.11)^1 + 150 / (1 + 0.11)^2 + 150 / (1 + 0.11)^3 + 200 / (1 + 0.11)^4 + 300 / (1 + 0.11)^5 + 600 / (1 + 0.11)^6

Present value = 135.13514 + 121.74336 + 109.67871 + 131.74619 + 178.0354 + 320.7845

Present value = $997.12

2)

Future value = Present value (1 + rate)^time

Future value = 150 / (1 + 0.11)^5 + 150 / (1 + 0.11)^4 + 150 / (1 + 0.11)^3 + 200 / (1 + 0.11)^2 + 300 / (1 + 0.11)^1 + 600 / (1 + 0.11)^0

Future value = 252.75872 + 227.71056 + 205.14465 + 246.42 + 333 + 600

Future value = $1,865.03