Question

1. A small-scale businessman deposits money at the beginning of each year into his savings account, depending on the level of the business’ returns. He deposits $1000 in the first year, $3000 in the second year, $5000 in the third and $7000 in the fourth year and annual interest rate of 7%. What is the value of the investment at the time of his first deposit?

Answer 1

The value of the investment at the time of his first deposit is $13,855.

Step-by-step explanation:

The Value of the Investment at the time of his first deposit is its Net Present Value.

Calculation of the Net Present Value of this Investment is as follows ;

Hint : Find the Present Value of individual deposits and sum them up

PV = FV / (1 + r) ^n

Year 0 = $1000 / (1.07)^0

= $1,000

Year 1 = $3000 / (1.07)^1

= $2,804

Year 2 = $5000 / (1.07)^2

= $4,367

Year 2 = $7000 / (1.07)^3

= $5,714

Net Present Value = $1,000 + $2,804 + $4,367 + $5,714

= $13,855