Question

an investment will pay $100 at the end of each of the next 3 years, $200 at the end of year 4, $300 at the end of year 5, and $500 at the end of year 6. If other investments of equal risk earn 8% annually, what is this investment's present value? Its future value?

Answer 1

NPV = $923.98

FV = $1466.23

Explanation:

Answer 2

Total Present value = $923.98

Total Future Value = $1,466.23

Explanation:

Given data:

total investment for next three year is $100

total investment for 4th year $200

total investment for 5th year $300

total investment for 6th year $500

Present value is calculated as

Year 1

`( 100)/((1.0 + .08)) = $ 92.59`

Year 2

`(100)/((1.0 + .08)^2) = $ 85.73`

Year 3

`(100)/((1.0 + .08)^3) = $ 79.38`

Year 4

`(200)/((1.0 + .08)^4)= $147.01`

Year 5

`(300)/((1.0 + .08)^5)= $204.17`

Year 6

`(500)/((1.0 + .08)^6)= $315.08`

Total Present value = $923.98

future value calculation:

Year 1

`100 * (1.0 + .08)^5 = $146.93`

Year 2

`100 * (1.0 + .08)^4 = $136.05`

Year 3

`100 * (1.0 + .08)^3 = $125.97`

Year 4

`200 * (1.0 + .08)^2 = $233.28`

Year 5

`300 * (1.0 + .08)^1 = $324.00`

Year 6

`500 * (1.0 + .08)^0 = $500.00`

Total Future Value = $1,466.23