The endowment will be created by making a single

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Unformatted text preview: 000 $1,200 2 1,000 25,000 1,200 3 1,200 20,000 1,000 4 10,000 1,900 5 4–26 B 1 LG4 A 5,000 Future value of a single amount versus a mixed stream Gina Vitale has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 at the closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next 5 years. Because Gina doesn’t really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. Given her desire to buy a house at the end of 5 years after closing on the sale of the lot, she decides to choose the payment alternative—$24,000 single amount or the mixed stream of payments in the following table—that provides the higher future value at the end of 5 years. Mixed stream Beginning of year Cash flow 1 $ 2,000 2 4,000 3 6,000 4 8,000 5 10,000 a. What is the future value of the single amount at the end of year 5? b. What is the future value of the mixed stream at the end of y...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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