Question

# Problem 4-7 Present and Future Value of an Uneven Cash Flow Stream An investment will pay...

Problem 4-7

Present and Future Value of an Uneven Cash Flow Stream An investment will pay \$100 at the end of each of the next 3 years, \$400 at the end of Year 4, \$600 at the end of Year 5, and \$700 at the end of Year 6. If other investments of equal risk earn 7% annually, what is its present value? Round your answer to the nearest cent. \$ What is its future value? Round your answer to the nearest cent. \$

#### Homework Answers

Answer #1

Cash Flows:
Year 1 = \$100
Year 2 = \$100
Year 3 = \$100
Year 4 = \$400
Year 5 = \$600
Year 6 = \$700
Interest Rate = 7%

Present Value = \$100/1.07 + \$100/1.07^2 + \$100/1.07^3 + \$400/1.07^4 + \$600/1.07^5 + \$700/1.07^6
Present Value = \$93.46 + \$87.34 + \$81.63 + \$305.16 + \$427.79 + \$466.44
Present Value = \$1,461.82

Future Value = \$100*1.07^5 + \$100*1.07^4 + \$100*1.07^3 + \$400*1.07^2 + \$600*1.07 + \$700
Future Value = \$140.26 + \$131.08 + \$122.50 + \$457.96 + \$642.00 + \$700.00
Future Value = \$2,193.80

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