Question

You have decided to invest in the stock market and expect to have the following cash flows: 10,671 dollars outflow (initial investment) now (year 0): 48,125 dollars inflow (return) at the end of year one; 12,930 dollars inflow (return) at the end of year two; 59,759 dollars inflow (return) at the end of year three; and 14,471 dollars inflow (return) at the end of year four. Given that the current interest rate is 4% per year, compute the value of this asset at the end of year three taking into account all past and future cash flows. (note: round your answer to the nearest cent and do not include spaces, currency signs, or commas)

Answer 1

I = 4%

Present value = -10671 + 48125*(P/F, 4%,1) + 12930*(P/F, 4%,2) + 59759*(P/F, 4%,3) + 14471*(P/F, 9%,4)

= -10671 + 48125*0.961538 + 12930*0.924556 + 59759*0.888996 + 14471*0.854804

= 113052.908

Future value at EOY 3 = 113052.908 * (F/P, 4%,3) = 113052.908 * 1.124864 = 127169.15