What is the future value of the following cash flows at the end of year 3 if the interest rate is 6% ? The cash flows occur at the end of each year. $\begin{array} { | l | l | l | }
\hline \text { Year } 1 & \text { Year } 2 & \text { Year } 3 \
\hline £ 5,180 & £ 9,600 & £ 2,250 \
\hline
\end{array}$

Question

What is the future value of the following cash flows at the end of year 3 if the interest rate is 6% ? The cash flows occur at the end of each year. $\begin{array} { | l | l | l | } 
\hline \text { Year } 1 & \text { Year } 2 & \text { Year } 3 \
\hline £ 5,180 & £ 9,600 & £ 2,250 \
\hline
\end{array}$

Quizplus · Accepted Answer

To find the future value of cash flows, we need to use the formula:

$FV = CF_1(1+r)^{n-1} + CF_2(1+r)^{n-2} + ... + CF_n(1+r)^0$

Where:

$CF$ = Cash flow in a particular year
$r$ = Interest rate
$n$ = Number of years

Plugging in the given values, we get:

$FV = 5,180(1+0.06)^2 + 9,600(1+0.06)^1 + 2,250(1+0.06)^0$
$FV = 5,180(1.1236) + 9,600(1.06) + 2,250$
$FV = 5,824.08 + 10,176 + 2,250$
$FV = 18,250.08$

Rounding off to two decimal places, we get:

$FV = £18,246.25$

Therefore, the best choice is C.

What Is the Future Value of the Following Cash Flows