Question

(Required) What is the present value of the payment stream discounted at 5% annually: $1000 at the end of year 1, -$2000 at the end of year 2, and $3000 at the end of year 3? Also calculate future value of the cash flows at the end of year 3. Financial calculator not allowed for this question. Show all work!

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=1000/1.05-2000/1.05^2+3000/1.05^3

=$1729.83(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=1729.83*(1.05)^3

=$2002.5