Question

Joey is planning to invest his savings in a fixed income fund. He manages to deposit $700 at the end of the first year, $500 at the end of the second year, $300 at the end of the third year, and $600 at the end of the fourth year. If the fund earns 6 percent interest each year, the terminal value of this uneven cash flow stream at the end of Year 4 is _____.

Answer 1

$2313.51

Explanation:

Here we calculate the future value for each cash flow and add them up.

Given he deposited $700 at the end of the first year .

Here time to maturity is 3years and interest rate is 6%.

`FV=C(1+r)^(t)`=
`700(1+0.06)^3=$833.71`

Given he deposited $500 at the end of the second year .

Here time to maturity is 2 years and interest rate is 6%.

`FV=C(1+r)^(t)`=
`500(1+0.06)^2=$561.8`.

Given he deposited $300 at the end of the third year .

Here time to maturity is 1years and interest rate is 6%.

`FV=C(1+r)^(t)`=
`300(1+0.06)^1=$318`.

Also given that he deposited $600 at the end of fourth year .There will be no interest on this amount as it is done at the end.

Terminal value=833.71+561.8+318+600=$2313.51