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FV OF UNEVEN CASH FLOW You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save $9,000 at the end of the first year, and you anticipate that your annual savings will increase by 5% annually thereafter. Your expected annual return is 8%. How much will you have for a down payment at the end of Year 3?

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Fundamentals Of Financial Manageme...

10th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337902571

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Chapter
Section
BuyFindarrow_forward

Fundamentals Of Financial Manageme...

10th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337902571
Chapter 5, Problem 33P
Textbook Problem
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FV OF UNEVEN CASH FLOW You want to buy a house within 3 years, and you are currently saving for the down payment. You plan to save $9,000 at the end of the first year, and you anticipate that your annual savings will increase by 5% annually thereafter. Your expected annual return is 8%. How much will you have for a down payment at the end of Year 3?

Summary Introduction

To calculate: Amount of down payment at the end of three years.

Introduction:

Future Value of Cash Flow:

If single cash flow put in an investment at present day, which pays the investor compound interest how much does it grow over the period of time is known as the future value of cash flow.

Explanation of Solution

Formula to calculate future value of cash flow is,

FVN=PV(1+I)N

Where,

  • FVN is the future value.
  • PV is the present value.
  • I is the interest rate.
  • N is the compounding period.

To calculate amount of down payment at the end of 3 years

Year

Present value

(A)

Future Value @7%

(B)

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Chapter 5 Solutions

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
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