You have just received a windfall from an investment you made in a friend's business. She will be paying you
$ 28,753 at the end of this year, $57,506 at the end of next year, and $86,259 at the end of the year after that (three years from today). The interest rate is 13.6% per year.
a. What is the present value of your windfall?
b. What is the future value of your windfall in three years (on the date of the last payment)?
a)
Present value = 28,753 / (1 + 0.136)1 + 57,506 / (1 + 0.136)2 + 86,259 / (1 + 0.136)3
Present value = 25,310.73944 + 44,561.16098 + 58,839.56115
Present value = $128,711.46
b)
Future value = 28,753(1 + 0.136)2 + 57,506(1 + 0.136)1 + 86,259(1 + 0.136)0
Future value = 37,105.63149 + 65,326.816 + 86,259
Future value = $188,691.45
You have just received a windfall from an investment you made in a friend's business. She...
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