Find the PV and the FV of an investment that makes the following end-of-year pay

Question

Find the PV and the FV of an investment that makes the following end-of-year payments. The interest rate is 8%. To find the PV, use the NPV function: PV = Excel does not have a function for the sum of the future values for a set of uneven payments. Therefore, we must find this FV by some other method. Probably the easiest procedure is to simply compound each payment, then sum them, as is done below. Note that since the payments are received at the end of each year, the first payment is compounded for 2 years, the second for 1 year, and the third for 0 years. An alternative procedure for finding the FV would be to find the PV of the series using the NPV function, then compound that amount for 3 years at 8%, as is done below:

Explanation / Answer

PV = 100/1.08^1 + 200 / 1.08^2 + 400 / 1.08^3 = $581.59

Or, PV = NPV(8%, select 100, 200,400) = $581.59

FV = either above way of calculating the future values or NPV * (1 + Discounting rate)^tenure = $581.59 * 1.08^3 = $732.64

Year Payment FV Factor FV Factor Formula FV Values 1 100 1.1664 1.08^2 116.64 2 200 1.0800 1.08^1 216 3 400 1.0000 1.08^0 400 Future Values 732.64

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