Let t denote years. Consider the following stream of payments: t = Payment 1 $20
ID: 2696074 • Letter: L
Question
Let t denote years. Consider the following stream of payments:
t = Payment
1 $200
2 $400
a. Calculate the future value at t = 3 of the payment at t = 1 given an interest rate is 1% (r = .01).
b. Calculate the future value at t = 3 of the payment at t = 2 given an interest rate is 1% (r = .01).
As with the present value of a set of payments, the future value of a set of payments is simply the sum of the future values of the individual payments. Given your answers to parts a and b above, what is the future value at t = 3 of the stream of payments listed in the table above?
Explanation / Answer
a) FV of payment 1 is 200 * 1.01^2 = 204.02
b) FV of payment 2 is 400 * 1.01 = 404
c) FV = 204.02 + 404 = 608.02
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