Present and future values of a cash flow stream An investmen

Present and future values of a cash flow stream An investment will pay $150 at the end of each of the next 3 years, $200 at the end of Year 4, $400 at the end of Year 5, and $550 at the end of Year 6. a. If other investments of equal nsk earn 7% annually, what is its present vale? Round your answer to the nearest ce b. If other investments of equal risk earn 7% annually, what is its future value? Round your answer to the nearest cent.

Solution

a.

Present value = 1,197.91

b. future value = 1,197.91 * 1.07^6 = 1,797.74

Discount rate	7.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
-	0	-	-
150.000	1	140.19	140.19
150.000	2	131.02	271.20
150.000	3	122.44	393.65
200.000	4	152.58	546.23
400.000	5	285.19	831.42
550.000	6	366.49	1,197.91