You are expecting annual cash ﬂows of $1,000 in years 1-5; $2,000 in years 6-10; and $5,000 in years 11-20. If the rate of interest is 8% compounded annually, calculate the future value of this cash
ﬂow stream.

Question

Quizplus · Accepted Answer

The future value of the cash flow stream can be calculated using the formula:FV = PV * (1 + r)^nwhere:PV is the present value of the cash flow streamr is the annual interest raten is the number of yearsIn this case, the present value of the cash flow stream is:PV = $1,000 * (1 + 0.08)^5 + $2,000 * (1 + 0.08)^10 + $5,000 * (1 + 0.08)^20= $1,000 * 1.4693 + $2,000 * 2.1589 + $5,000 * 12.5779= $1,469.30 + $4,317.80 + $62,889.50= $68,676.60The future value of the cash flow stream is:FV = $68,676.60 * (1 + 0.08)^20= $68,676.60 * 6.2303= $428,347.96Therefore, the correct answer is A) $116,374.

You Are Expecting Annual Cash ﬂOws of $1,000 in Years