Question

Mike is scheduled to receive payments of $1,200 each month for the next 2 years, with...

Mike is scheduled to receive payments of $1,200 each month for the next 2 years, with the first payment beginning today. How much can Mike expect to have at the end of year 2 if he is able to invest these cash flows at a rate of 8% assuming monthly compounding?

A.

$31,327.29
B.

$31,119.83
C.

$2,496.00
D.

$80,117.71
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Homework Answers

Answer #1

Monthly Payments (PMT) = $ 1200

Tenure (NPER) = 2 years or 24 months (since this is monthly compounding)

Nature = Monthly compounding

Rate of Investment (RATE) = 8% per annum

Payment pattern = Beginning of the month (1); If the payment is at end of the month, then the value should be "0" as last factor in the below given formula.

Using Excel, the Future value (FV) of this investment can be computed,

FV = (RATE/12,NPER,-PMT,,1) = (8%/12,24,-1200,,1) = $ 31.327.29 Answer (A)

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