Question 2 1 point You have just purchased an investment tha

Question 2 (1 point) You have just purchased an investment that generates the cash flows shown below for the next four years. You are able reinvest these cash flows at 5.06 percent, compounded annually. How much is this investment worth at the end of year four? End of year 1. $327 2. $1,003 3. $379 4. $272 Round the answer to two decimal places.

Solution

Value of investment at the end of year 4 = Future value of annual cash flows

Future Value of year 1 cash flow = $327*1.0506³ = $379.19

Future value of year 2 cash flow = $1,003 * 1.0506² = $1,107.07

Future value of year 3 cash flow = $379 * 1.0506¹ = $398.18

Future value of year 4 cash flow = $272

Investment worth at the end of year 4 = $379.19 + $1,107.07 + $398.18 + $272 = $2,156.44