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Unformatted text preview: .60 + 4320 +
4000 = 21,803.58 • Note: later we’ll do this type of calculation in a
more streamlined way Multiple Cash Flows – FV
Example 2
• Suppose you invest $500 in a mutual fund
today and $600 in one year. If the fund
pays 9% annually, how much will you have
in two years?
• Formula Approach
• FV = 500(1.09)2 + 600(1.09) = 1248.05 • Calculator Approach
• Year 0 CF: 2 N; 500 PV; 9 I/Y; CPT FV = 594.05
• Year 1 CF: 1 N; 600 PV; 9 I/Y; CPT FV = 654.00
• Total FV = 594.05 + 654.00 = 1248.05 Multiple Cash Flows – FV Example 2
Continued
• How much will you have in 5 years if you make
no further deposits?
• Formula Approach
• First way: • FV = 500(1.09)5 + 600(1.09)4 = 1616.26 • Second way – use value at year 2:
• FV = 1248.05(1.09)3 = 1616.26 • Calculator Approach
• First way:
• Year 0 CF: 5 N; 500 PV; 9 I/Y; CPT FV = 769.31
• Year 1 CF: 4 N; 600 PV; 9 I/Y; CPT FV = 846.95
• Total FV = 769.31 + 846.95 = 1616.26 • Second way – use value at year 2:
• 3 N; 1248.05 PV; 9 I/Y; CPT FV = 1616.26 Multiple Cash Flows – FV
Example 3
• Suppose you plan to deposit $100 into an account in
one year and $300 into the account in three years.
How much will be in the account in five years if the
interest rate is 8%?
• Formula Approach
• FV = 100(1.08)4 + 300(1.08)2 = 136.05 + 349.92
= 485.97
• Calculator Approach
• Year 1 CF: 4 N; 100 PV; 8 I/Y; CPT FV = 136.05
• Year 3 CF: 2 N; 300 PV; 8 I/Y; CPT FV = 349.92
• Total FV = 136.05 + 349.92 = 485.97 Multiple Cash Flows – PV
Example 1
• You are offered an investment that will pay
you $200 in one year, $400 the next year,
$600 the year after, and $800 at the end of
the following year. You can earn 12% on
similar investments. How much is this
investment worth today? Multiple Cash Flows  PV Example
1  Timeline
0 1 200
178.57
318.88
427.07
508.41
1432.93 2 3 4 400 600 800 Multiple Cash Flows  PV Example
1 continued
• Find the PV of each cash flow and add
them
• Formula Approach
•
•
•
•
• Year 1 CF: 200 / (1.1...
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This document was uploaded on 02/06/2014.
 Fall '14

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