Question

$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is _________.

A)

$1,536

B)

$ 672

C)

$1,245

D)

$ 727

Answer 1

To calculate the combined future value at the end of year 3, use the future value formula and find the future values of each cash flow. Then, sum up the future values to get the combined future value. The combined future value at the end of year 3 is approximately $738.73.

Step-by-step explanation:

To calculate the combined future value at the end of year 3, we need to find the future values of each cash flow and then sum them up. Given that the interest rate is 12%, we can use the future value formula: FV = PV × (1 + r)^t, where FV is the future value, PV is the present value, r is the interest rate, and t is the number of years.

For the first cash flow of $100, FV = 100 × (1 + 0.12)^3 = $149.29

For the second cash flow of $200, FV = 200 × (1 + 0.12)^2 = $253.44

For the third cash flow of $300, FV = 300 × (1 + 0.12) = $336

Now, we sum up the future values: $149.29 + $253.44 + $336 = $738.73

Therefore, the combined future value at the end of year 3 is approximately $738.73.