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.

Question

Quizplus · Accepted Answer

Using the formula for the future value of annuity:

FV = C x ((1+r)^n - 1)/r

Where:
C = cash flow per period (in this case, per year)
r = interest rate per period (in this case, per year)
n = number of periods (in this case, 3 years)

So, plugging in the values:
FV = $5,000 x ((1+0.06)^3 - 1)/0.06 + $6,000 x ((1+0.06)^2 - 1)/0.06 + $7,000 x ((1+0.06)^1 - 1)/0.06
FV = $18,246.25

Therefore, the best choice is C.

What Is the Future Value of the Following Cash ﬂOws