The government has imposed a ﬁne on the Not-So-Legal Company.The ﬁne calls for annual payments of £100,000, £250,000, and £250,000, respectively over the next three years.The ﬁrst payment is due one year from today.The government plans to invest the funds until the ﬁnal payment is collected and then donate the entire amount, including investment earnings, to a national health center.The government will earn 3.5% on the funds held.How much will the national health center receive three years from today?

Question

Quizplus · Accepted Answer

The future value of the payments can be calculated using the formula for future value of a series of cash flows. The future value of each payment is calculated separately and then summed up. The first payment of £100,000 will be invested for 2 years, the second payment of £250,000 for 1 year, and the third payment of £250,000 will not be invested. The future value is calculated as follows:  FV = £100,000 * (1 + 0.035)^2 + £250,000 * (1 + 0.035)^1 + £250,000  = £100,000 * 1.07225 + £250,000 * 1.035 + £250,000  = £107,225 + £258,750 + £250,000  = £615,872.50

The Government Has Imposed a ﬁNe on the Not-So-Legal Company