Question

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. $

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