Question

Calculate the net future value at year 2 for the following cash flows and interest rates compounded quarterly (rounded $ to two places after the decimal). The year 0 cash flow is $373, the year 1 cash flow is $200, and the year 2 cash flow is $-147. The interest rate for the first period (year 0 to 1) is 3% and the interest rate for the second period (year 1 to 2) is 4.5%.

Answer 1

Cash Flow, Year 0 = $373
Cash Flow, Year 1 = $200
Cash Flow, Year 2 = -$147

Annual Interest Rate for Year 1 = 3.00%
Quarterly Interest Rate for Year 1 = 3.00% / 4
Quarterly Interest Rate for Year 1 = 0.75%

Annual Interest Rate for Year 2 = 4.50%
Quarterly Interest Rate for Year 2 = 4.50% / 4
Quarterly Interest Rate for Year 2 = 1.125%

Future Value = $373 * 1.0075^4 * 1.01125^4 + $200 * 1.01125^4 - $147
Future Value = $373 * 1.077493 + $200 * 1.045765 - $147
Future Value = $464.06