Question

You have just received a windfall from an investment you made in a​ friend's business. She will be paying you $35,235 at the end of this​ year, $ 70,470 at the end of next year, and $105,705 at the end of the year after that​ (three years from​ today). The interest rate is 7.6 % 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)?

Round to the nearest​ dollar.)

Answer 1

	Present Value = Future value/ ((1+r)^t)
	where r is the interest rate that is 7.6% and t is the time period in years.
	present value = sum of present values of future cash flows.
	t	1	2	3
	cash flow	35235	70470	105705
	present value	32746.28	60866.7	84851.34
	Sum of present values	178464.3
a)	The present value of your windfall is $178464
	Future Value = Present Value*((1+r)^t)
	where r is the interest rate that is 7.6% and t is the time period in years.
	future value = sum of future values of cash flows.
	t	2	1	0
	Year	1	2	3
	cash flow	35235	70470	105705
	future value	40794.24	75825.72	105705
	Sum of present values	222324.96
b)	The future value of your windfall is $222325.