An investment will pay 50 at the end of each of the next 3 y

An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 7% annually, what is its present value? Round your answer to the nearest cent. $ If other investments of equal risk earn 7% annually, what is its future value? Round your answer to the nearest cent. $

Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=50/1.07+50/1.07^2+50/1.07^3+250/1.07^4+300/1.07^5+500/1.07^6

which is equal to

=$869.01(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.

A=$869.01*(1.07)^6

=$869.01*1.500730352

=$1304.14(Approx).