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

Step 1

Horizon is n = 4 years from now.

FV_{n} = The future value at the end of period n, of a cash flow occuring at the end of period t = C_{t} x (1 + i)^{n-t}

where C_{t} = 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, FV_{4} = C_{t} 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...

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