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You have just received a windfall from an investment you made in a friend's business. He will be paying you $10,000 at the end of this year, $20,000 at the end of the following year, and $30,000 at the end of the year after that (three years from today). The interest rate is 3.5% 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)?

Respuesta :

pedrocarratore

Answer:

a. $55,390.29

b. $61,412.20

Step-by-step explanation:

a. To find the present value of your windfall, each value must be brought back to the present year at a rate of 3.5% per year. The present value is:

[tex]PV = \frac{10,000}{1.035}+\frac{20,000}{1.035^2}+\frac{30,000}{1.035^3}\\PV = \$55,390.29[/tex]

The present value of your windfall is $55,390.29.

b. To find the future value of your windfall at the date of the last payment, simply compound the preset value amount obtained on the previous item for three years at a rate of 3.5%:

[tex]FV =55,390.29*(1.035)^3\\FV=\$61,412.20[/tex]

The future value of your windfall is $61,412.20.

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