Question

5-2: Future Values 5-3: Present Values Problem Walk-Through Present and future values of a cash flow stream An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $500 at the end of Year 6. a. If other investments of equal risk earn 11% annually, what is its present value? Round your answer to the nearest cent. b. If other investments of equal risk earn 11% annually, what is its future value? Round your answer to the nearest cent.

Answer 1

We can solve this using excel NPV function:

Year	Cash Flow
1	$    50.00
2	$    50.00
3	$    50.00
4	$ 250.00
5	$ 350.00
6	$ 500.00
PV	$761.90

NPV formula:
=NPV(0.11,I9:I14)

Future Value = Present Value*((1+r)^n)

r is the rate and n is the number of periods

Future value= 761.90*(1.11^6)=$1,425.06

PV	15000
n	60
I/Y	0.67%
FV	0
CPT PMT	$304.15

EAR=((1.0067^12)-1)%
=8.30%