Question

Your company has made the following promises to a group of employees who are retiring today: a cash flow of $300 1 year from today, a cash flow of $500 2 years from today, a cash flow of $600 3 years from today? Assume all investments earn an annual interest rate of 10%, compounded annually. (The discount rate is 10%). The instant after they pay the $300 in Year 1, how much is in the account?

Answer 1

Year	Cash Flow	PV Factor	PV Of Cash Flow
a	b	c=1/1.10^a	d=b*c
1	$        500	0.9091	$                 454.55
2	$        600	0.8264	$                 495.87
Amount will have in account	$                 950.41