You have just received a windfall from an investment you made in a friend's business. She will be paying you $ 36 comma 079 at the end of this year, $ 72 comma 158 at the end of next year, and $ 108 comma 237 at the end of the year after that (three years from today). The interest rate is 5.6 % per year. a. What is the present value of your windfall? b. What is the future value of your windfall in three years (on the date of the last payment)?

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saqib097 saqib097 · Answer 1 · 2020-03-16T03:24:34+01:00

Answer:

a. What is the present value of your windfall?

Cashflows are:

0 ----> ? 1.17758

1 ----> 36,079

2 ----> 72,158

3 ----> 108,237

PV = CF0 + [tex]\frac{36,079}{1.056}[/tex] + [tex]\frac{72,158}{(1.056)^{2} } + \frac{108,237}{(1.056)^{3}}[/tex]

PV = 36,079 + 34,165.71 + 64,707.80 + 91914.77

PV = $226,867

b. What is the future value of your windfall in three years

FV = PV (1+R)[tex]^{3}[/tex]

= $226,867 * 1.17758

= $ 267154.86

The future value for my windfall is $267,155