Question

PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $50 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $550 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Round your answer to the nearest cent. $ If other investments of equal risk earn 11% annually, what is its future value? Round your answer to the nearest cent. $

Answer 1

a.	Present Value calculation:
	Year	Annual cash flow	Present Value of cash flows of $ 1	Present Value
	a	b	c=1.11^-a	b*c
	1	$                           50	0.9009	$               45.05
	2	$                           50	0.8116	$               40.58
	3	$                           50	0.7312	$               36.56
	4	$                        200	0.6587	$            131.75
	5	$                        300	0.5935	$            178.04
	6	$                        550	0.5346	$            294.05
		Total		$            726.02
b.	Future Value calculation:
	Year	Annual cash flow	Future Value of cash flows of $ 1	Future Value
	a	b	c=1.11^(6-a)	b*c
	1	$                           50	1.6851	$               84.25
	2	$                           50	1.5181	$               75.90
	3	$                           50	1.3676	$               68.38
	4	$                        200	1.2321	$            246.42
	5	$                        300	1.1100	$            333.00
	6	$                        550	1.0000	$            550.00
		Total		$         1,357.96