Question

An investment will pay $150 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 12% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent.

Answer 1

Year Cashflow DF@12% PV

$ $

1 150 0.8929 134

2 150 0.7972 120

3 150 0.7118 107

4 250 0.6355 159

5 300 0.5674 170 6 600 0.5066 304

994

Step-by-step explanation:

In this case, we will discount the cashflow for each year at 12% per annum. The discount factor can be obtained by using the formula (1 + r)-n. Then, we will multiply the cashflows by the discount factors in order to obtain the present values. All the present values will be added up.