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 = CF * [(1 + r)^n - 1] / rwhere:CF = cash flowr = rate of interestn = number of yearsIn this case, the cash flow is $1,000 in years 1-5, $2,000 in years 6-10, and $5,000 in years 11-20. The rate of interest is 8% compounded annually. The number of years is 20.Plugging these values into the formula, we get:FV = $1,000 * [(1 + 0.08)^20 - 1] / 0.08 + $2,000 * [(1 + 0.08)^15 - 1] / 0.08 + $5,000 * [(1 + 0.08)^10 - 1] / 0.08= $116,374.24Therefore, the future value of the cash flow stream is $116,374.24.

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