Question

Calculate the future value of $100,000 ten years from now based on the following annual interest rates:

2%

5%

8%

10%

Calculate the present value of a stream of cash flows based on a discount rate of 8%. Annual cash flow is as follows:

Year 1 = $100,000

Year 2 = $150,000

Year 3 = $200,000

Year 4 = $200,000

Year 5 = $150,000

Years 6-10 = $100,000

Calculate the present value of the cash flow stream in problem 2 with the following interest rates:

Year 1 = 8%

Year 2 = 6%

Year 3 = 10%

Year 4 = 4%

Year 5 = 6%

Years 6-10 = 4%

Answer 1

Answer to Question 1:

Answer a.

Future Value = Present Value * (1 + Interest Rate)^Period
Future Value = $100,000 * 1.02^10
Future Value = $121,899.44

Answer b.

Future Value = Present Value * (1 + Interest Rate)^Period
Future Value = $100,000 * 1.05^10
Future Value = $162,889.46

Answer c.

Future Value = Present Value * (1 + Interest Rate)^Period
Future Value = $100,000 * 1.08^10
Future Value = $215,892.50

Answer d.

Future Value = Present Value * (1 + Interest Rate)^Period
Future Value = $100,000 * 1.10^10
Future Value = $259,374.25