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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.
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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