Suppose you receive $100 at the end of each year for the nextthree years.What...

Suppose you receive $100 at the end of each year for the next three years.

What is the future value in three years at 8% interest?

Solutions

Expert Solution

FV of Annuity :
Annuity is series of cash flows that are deposited at regular intervals for specific period of time.

FV of Annuity = CF [ (1+r)^n - 1 ] / r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$ 100.00
Int Rate	8.000%
Periods	3

FV of Annuity = Cash Flow * [ [ ( 1 + r ) ^ n ] - 1 ] /r
= $ 100 * [ [ ( 1 + 0.08 ) ^ 3 ] - 1 ] / 0.08
= $ 100 * [ [ ( 1.08 ) ^ 3 ] - 1 ] / 0.08
= $ 100 * [ [1.2597] - 1 ] / 0.08
= $ 100 * [0.2597] /0.08
= $ 324.64
Future value = $ 324.64

jeff jeffy answered 2 years ago

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