Question

Moving Cash Flows What is the value in year 17 of a $800 cash flow made in year 5 when the interest rates are 4.2 percent?

Answer 1

Cash flow of $ 800 was made in Year 5 , we have been asked to find its value in Year 17 ; interest rate = 4.2% (given).

Let us first find the present value of $800 invested in Year 5:

Present value = Future value / (1+interest rate)^{time period in years}

Present value = 800/1.042⁵

Present value = $ 651.26

So now the question can be simply understood as - "What is the value of $ 651.26 invested today in Year 17?"

Future value = Present Value * (1+ interest rate)^{time period in years}

Future value = 651.26 * (1.042)¹⁷

Future value = $ 1310.71

Hence value in Year 17 of $ 800 invested in Year 5 (which is equivalent to $651.26 invested today) is $ 1310.71.