Question

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 $500 at the end of Year 6. If other investments of equal risk earn 12% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent.

Answer 1

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

=50/1.12+50/1.12^2+50/1.12^3+250/1.12^4+400/1.12^5+500/1.12^6

=$759.26(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=759.26*(1.12)^6

=$1498.64(Approx)