Question

Suppose you are planning to invest your saving in a fixed income fund. you feel you can mange 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

$2,314

Step-by-step explanation:

Calculation for what The terminal value of this uneven cash flow stream at the end of Year 4 is

First step is to calculate the terminal Value at the end of the first year

Terminal Value at the end of the first year=$700(1+0.06)^3

Terminal Value at the end of the first year=$833.7

Second step is to calculate the terminal Value at the end of the second year

Terminal Value at the end of the second year=$500(1+0.06)^2

Terminal Value at the end of the second year=$561.8

Third step is to calculate the terminal Value at the end of the third year

Terminal Value at the end of the third year=$300(1+0.06)^1

Terminal Value at the end of the third year=$318

Now let calculate the terminal value of this uneven cash flow stream at the end of Year 4

Terminal Value at the end of year 4=$833.7+$561.8+$318+$600

Terminal Value at the end of year 4=$2,313.5

Terminal Value at the end of year 4=$2,314 (Approximately)

Therefore The terminal value of this uneven cash flow stream at the end of Year 4 is $2,314