Question

1. An investment will pay you $100 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 $500 at the end of Year 6. If the investment earns 8% annually, what is its future value?

Answer 1

The question is solved by first calculating the present value.

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -0.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 8%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 8% interest rate is $923.98.

Information provided:

Present value= $923.98

Time= 6 years

Interest rate= 8%

The question is solved by calculating the future value.

Enter the below in a financial calculator to compute the future value.

PV= -923.98

N= 6

I/Y= 8

Press the CPT key and FV to compute the future value.

The value obtained is 1,466.24.

Therefore, the future value is $1,466.24.

In case of any query, kindly comment on the solution.