Question

An investment will pay $150 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? Round your answer to the nearest cent. $ If other investments of equal risk earn 8% annually, what is its future value? Round your answer to the nearest cent.

Answer 1

1	2	3	4=2*3
year	cash flow($)	DF @ 8%	PV($)
1	150	0.9259	138.89
2	150	0.8573	128.60
3	150	0.7938	119.07
4	250	0.7350	183.76
5	400	0.6806	272.23
6	600	0.6302	378.10
			1221

For DF(discounting factor), we used power function in Excel where DF=(1/1+rate,years)

For example: DF for year 1=1/(1+0.08)¹=1/1.08=0.9259

1	2	3	4=2*3
year	cash flow($)	FVF @ 8%	FV($)
1	150	1.4693	220.40
2	150	1.3605	204.07
3	150	1.2597	188.96
4	250	1.1664	291.60
5	400	1.0800	432.00
6	600	1.0000	600.00
			1937.03

For FVF(Future Value Factor), we used power function in Excel where FVF=(1+rate,last year-1)

For example: FVF for year 1=(1.08)^{last year-1}=(1.08)^6-1=(1.08)⁵=1.4693