Question

Calculate the value of the cash flows at time 8. The interest rate is 11.37%.

0 1yr 2 yr

$1,118 $2,180 $3,278

Answer 1

Answer - Value of cash flow at time 8 = 13533.55

Workings

Step - 1 - Time line and calculation of time remaining till 8 years

Year	Cash Flow	Time remaining till year 8 (Years)
0	1118	8
1	2180	7
2	3278	6

Step - 2 - Compounding the cash flows at 11.37% fot time remaining, therefore

Cash flow of Year 0 will be compounded for 8 years at 11.37%

Cash flow of Year 1 will be compounded for 7 years at 11.37%

Cash flow of Year 2 will be compounded for 6 years at 11.37%

Step 3 - Calculation of Future value at the end of 8 year

Future Value of amount invested in year 0 = 1118 * 1.1137^8 = 2645.98

Future Value of amount invested in year 1 = 2180 * 1.1137^7 = 4632.69

Future Value of amount invested in year 2 = 3278 * 1.1137^6 = 6254.86

Total of all the 3 future value = 2645.98 + 4632.69 + 6254.86 = 13533.55