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Which formula moves a cash flow ahead 6 years in time at an interest rate of 5%?

a. PV = 800/(1+0.06)⁵
b. PV = 800/(1+0.05)⁶
c. FV = 800 (1+0.06)⁵
d. FV = 800 (1+0.05)⁶

User MikZuit
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1 Answer

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Final answer:

The formula to move a cash flow ahead 6 years at a 5% interest rate is d. FV = 800 (1+0.05)^6, which applies the Future Value compound interest calculation.

Step-by-step explanation:

The correct formula for moving a cash flow ahead 6 years in time at an interest rate of 5% is based on the Future Value compound interest calculation:

FV = Principal × (1 + interest rate)time

The student aims to find the future value of a cash flow of $800 after 6 years at an interest rate of 5%. Using the formula, the future value (FV) can be calculated as follows:

FV = 800 × (1 + 0.05)6

This is choice d. FV = 800 (1+0.05)6 in the question provided, which means the cash flow will be moved ahead 6 years and accrue interest at the 5% rate during this time period.

User Muqito
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