An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $550 at the end of Year 6. If other investments of equal risk earn 9% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent.
Present value: $
Future value:
Present value=Cash flows*Present value of discounting factor(rate%,time period)
=50/1.09+50/1.09^2+50/1.09^3+250/1.09^4+400/1.09^5+550/1.09^6
=$891.59(Approx).
We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
Future value=891.59*(1.09)^6
=$1495.29(Approx).
SOLUTION :
Discount rate, r = 09% = 0.09
=> 1 + r = 1.09
PV
= 50/1.09+50/1.09^2+50/1.09^3+250/1.09^4+400/1.09^5+550/1.09^6
= 891.59 ($) (ANSWER).
FV
= PV*1.09^6
= 891*1.09^6
= 1495.29 ($) (ANSWER)
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