Question

You will make the following investments for a boat: $2,500 today, $3,000 at the end of year three, and $1800 at the end of year five. How much will you have in five years if you can earn 3.2% on your investments?

A) $7,300.000

B) $7,921.505

C) $7,979.105

D) $6,767.203

E) $9,456.349

Answer 1

Option-B- $7921.505

There are 3 investments. so we need to calculate the maturity amount of 3 Investments and add them to get the amount that I will have at the end of the 5 years.

Step-1: Future value of 2500 investment made today for 5 years

Future value = present value * (1+interest rate)ⁿ

Where n denotes number of years or periods

Future value of 2500 after 5 years = 2500* (1+0.032)⁵

  ​​​​​​=2500* 1.17057

=2926.433

Step-2: Future value of 3000 investment made at 3rd year ending for 2 years

As the investment of 3000 will be made at the end of 3rd year, it will have the interest for 4th and 5th year only.so the investment period will be 2 years.

Future value of 3000 = 3000* (1+0.032)²

= 3000* 1.06502

= 3195.072

Step-3:

Investment of 1800 will be made at the end of year 5 , so it will not fetch any interest. The value will be 1800 itself.

Step-4:

Future value of all Investments= 2926.433+3195.072+1800

Future value of Investments at the end of year-5=7921.505