Question

Rick is planning to invest the following amounts at 7 percent: $254 at the end of year 1, $412 at the end of year 2, and $1,230 at the end of year 3. How much money will he have saved at the end of year 3

Answer 1

$1,961.65

Step-by-step explanation:

The formula for finding future value :

FV = P (1+r)^n

P = Present value

R = interest rate

N = number of years

First step is to find the present value of the cash flows.

PV can be found using a financial calculator

Cash flow in year 1 = $254

Cash flow in year 2 = $412

Cash flow in year 3 = $1,230

I = 7%

Present value = $1,601.29

I would now input the value of p in the FV formula

$1,601.29 ( 1 + 0.07) ^3 = $1,961.65

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute