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An investment will pay $50 at the end of each of the next 3 years, $250...

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Finance

An investment will pay $50 at the end of each of the next 3years, $250 at the end of Year 4, $350 at the end of Year 5, and$500 at the end of Year 6. If other investments of equal risk earn6% annually, what is its present value? Its future value? Do notround intermediate calculations. Round your answers to the nearestcent.

Present value: $   

Future value: $   

Answer & Explanation Solved by verified expert
3.7 Ratings (679 Votes)

CF
Discount rate 6.000%
Year 0 1 2 3 4 5 6
Cash flow stream 0 50 50 50 250 350 500
Discounting factor 1.000 1.060 1.124 1.191 1.262 1.338 1.419
Discounted cash flows project 0.000 47.170 44.500 41.981 198.023 261.540 352.480
NPV = Sum of discounted cash flows
NPV CF = 945.69
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
Compounding rate 6.000%
Year 0 1 2 3 4 5 6
Cash flow stream 0 50 50 50 250 350 500
Compounding factor 1.419 1.338 1.262 1.191 1.124 1.060 1.000
Compounded cash flows   0.000 66.911 63.124 59.551 280.900 371.000 500.000
FV = Sum of compounded cash flows
FV= 1341.49
Where
Compunding factor = (1 + rate)^(Last period-Corresponding period in years)
Compounded Cashflow= Cash flow stream*compounding factor

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Transcribed Image Text

An investment will pay $50 at the end of each of the next 3years, $250 at the end of Year 4, $350 at the end of Year 5, and$500 at the end of Year 6. If other investments of equal risk earn6% annually, what is its present value? Its future value? Do notround intermediate calculations. Round your answers to the nearestcent.Present value: $   Future value: $   

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