Question

Consider an investment of $30,000 that is deposited in year 0 and the amount invested increases by 10% per year through year 8 at an interest rate of 10% per year.

Draw a cash flow diagram and label it with all cash flows from year 0 to year 8.

Calculate the future value of this investment at the end of year 8.

Answer #1

Calculation of Future Value of the
investment |
|||

Year |
Cash Flows |
Discount Factor
@10% |
Discounted Cash
Flows |

A |
B |
C=1/(1+10%)^(8-A) |
D =
B*C |

0 | 30000 | 2.14358881 | 64307.6643 |

1 | 33000 | 1.9487171 | 64307.6643 |

2 | 36300 | 1.771561 | 64307.6643 |

3 | 39930 | 1.61051 | 64307.6643 |

4 | 43923 | 1.4641 | 64307.6643 |

5 | 48315.3 | 1.331 | 64307.6643 |

6 | 53146.83 | 1.21 | 64307.6643 |

7 | 58461.513 | 1.1 | 64307.6643 |

8 | 64307.6643 | 1 | 64307.6643 |

Future Value | 578768.9787 | ||

Therefore, Future value of the investment is $578,768.98 |

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