Question

An investment will pay $200 at the end of each of the next 3 years, $300 at the end of Year 4, $500 at the end of Year 5, and $800 at the end of Year 6. If other investments of equal risk earn 5% annually, what is its present value? Round your answer to the nearest cent. $ 2255.30 What is its future value? Round your answer to the nearest cent. $ 3022.32

Answer 1

Present value = $1,780.20

Future value = $2,385.64

Step-by-step explanation:

Years Annual cash flows Discount factor @5% Present value

1 $200.00 0.9523809524 $190.48

2 $200.00 0.9070294785 $181.41

3 $200.00 0.8638375985 $172.77

4 $300.00 0.8227024748 $246.81

5 $500.00 0.7835261665 $391.76

6 $800.00 0.7462153966 $596.97

Present value $1,780.20

Now the future value is

Future value = Present value × (1 + interest rate)^number of years

= $1,780.20 × (1 + 0.05)^6

= $1,780.20 × 1.3400956406

= $2,385.64