Question
Asked Jun 21, 2019

What is the future value of the following set of cash flows 4 years from now? Assume interest rate 6.5%.
t      0     1     2     3    4
CF 200 200 300 300 300

check_circleExpert Solution
Step 1

Horizon is n = 4 years from now.

FVn = The future value at the end of period n, of a cash flow occuring at the end of period t = Ct x (1 + i)n-t

where Ct = Cash flow occuring at the end of period t and i = interest rate per period.

Step 2

In our case, n = horizon period = 4 years

i = 6.5%

Hence, FV4 = Ct x (1 + 6.5%)4-t

We now proceed to do the calculation in an excel file. 

Step 3

Please see the table on the white board. Please be guided by the second row to understand the mathema...

Period
Cash flows
Period for FV
FV4
Ct x (1+6.5%)4t
Ct
4-t
t
257.29
0
200
4
1
200
3
241.59
2
2
300
340.27
319.50
3
300
1
4
300
0
300.00
Total
1,458.65
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Period Cash flows Period for FV FV4 Ct x (1+6.5%)4t Ct 4-t t 257.29 0 200 4 1 200 3 241.59 2 2 300 340.27 319.50 3 300 1 4 300 0 300.00 Total 1,458.65

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