Question

An investment will pay $50 at the end of each of the next 3 years, $200 at the end of Year 4, $400 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 10% annually, what is its present value

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=50/1.07+50/1.07^2+50/1.07^3+250/1.07^4+400/1.07^5+600/1.07^6

=$1006.94(Approx)

Future value=1006.94*(1.07)^6

=$1511.14(Approx).

Step-by-step explanation:

We use the formula:

A=P(1+r/100)^n

where

A=future value

P=present value

r=rate of interest

n=time period.