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4.7 - discounting the payments back times the number of...

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4-7 An Investment Pays You $100 At The End Of The Next 3 Years . The Investment Will Then Pay You $200 At The End Of The Year $300 At The End Of Year 5 And $500 At The End Of Year 6. If The Rate Of Interest On The Investment Is 8% What Is The PV? FV? To determine the present value in this situation we have to subtract the hypothetical value of the interests that would have been accumulated during the period. It is like walking backwards
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Unformatted text preview: discounting the payments back times the number of time periods ( http://www.investopedia.com/articles/03/082703.asp#axzz1ogtahlsF ) PV = 100(1.08)-1 + 100(1.08)-2 + 100(1.08)-3 + 200(1.08)-4 + 300(1.08)-5 + 500(1.08)-6 = $923.98 As for the future value we consider there are 5 different cash flows FV= $100 * 1.08^5 + $100 * 1.08^4 + $100 * 1.08^3 + $200 * 1.08^2 + $300 * 1.08 + 500 FV = $1,466.23...
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