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, $300 at the end of Year 4, $500 at the end of Year 5, and $700 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.

Solution

PVAF @ 7% for 3 years = 2.6243

PVIF for 4^th year @7% = 0.7629

PVIF for 5^th year @7% = 0.7130

PVIF for 6^th year @7% = 0.6663

Cash flow at the end of each of next 3 year (100 * 2.6243)

262.43

Cash flow at the end of 4th year (300 * 0.7629)

228.87

Cash flow at the end of 5th year (500 * 0.7130)

356.50

Cash flow at the end of 6th year (700 * 0.6663)

466.41

Present Value

1314.21