An investment will pay 100 at the end of each of the next 3

An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 6% annually, what is its present value? Round your answer to the nearest cent. $ If other investments of equal risk earn 6% annually, what is its future value? Round your answer to the nearest cent.

Solution

a. Present Value $ 1,187.20 Working; Year Cash flow Discount factor Present Value a b c=1.06^-a d=b*c 1 $         100                       0.9434 $               94.34 2 100                       0.8900                   89.00 3 100                       0.8396                   83.96 4 250                       0.7921                 198.02 5 400                       0.7473                 298.90 6 600                       0.7050                 422.98 Total             1,187.20 b. Future Value $ 1,684.07 Working: Year Cash flow Future Value of 1 Future Value a b c=1.06^(6-a) d=b*c 1 $         100                       1.3382 $            133.82 2 100                       1.2625                 126.25 3 100                       1.1910                 119.10 4 250                       1.1236                 280.90 5 400                       1.0600                 424.00 6 600                       1.0000                 600.00 Total             1,684.07