You have just received a windfall from an investment you made in a friend\'s bus

Question

You have just received a windfall from an investment you made in a friend's business. She will be paying you $ 31 comma 989$31,989 at the end of this year, $ 63 comma 978$63,978 at the end of next year, and $ 95 comma 967$95,967 at the end of the year after that (three years from today). The interest rate is 14.7 %14.7% 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)? a. What is the present value of your windfall? The present value of your windfall is $nothing. (Round to the nearest dollar.) b. What is the future value of your windfall in three years (on the date of the last payment)? The future value of your windfall in three years is $nothing. (Round to the nearest dollar.)

Explanation / Answer

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=31989/1.147+63978/1.147^2+95967/1.147^3

=$140116(Approx).

2.

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence

A=31989*(1.147)^2+$63978*(1.147)+$95967

=$211435(Approx).

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