Joey is planning to invest his savings in a fixed income fund. He manages to deposit $700 at the end of the first year, $500 at the end of the second year, $300 at the end of the third year, and $600 at the end of the fourth year. If the fund earns 6 percent interest each year, the terminal value of this uneven cash flow stream at the end of Year 4 is _____.
A) $1,918
B) $1,855
C) $2,097
D) $2,355
E) $1,784

Question

Quizplus · Accepted Answer

The correct answer is A. The terminal value of the uneven cash flow stream at the end of Year 4 is $1,918. This is calculated by taking the sum of the present values of each cash flow, which are:PV of $700 at the end of Year 1 = $700 / (1 + 0.06)^1 = $660.38PV of $500 at the end of Year 2 = $500 / (1 + 0.06)^2 = $453.59PV of $300 at the end of Year 3 = $300 / (1 + 0.06)^3 = $267.96PV of $600 at the end of Year 4 = $600 / (1 + 0.06)^4 = $496.83Total PV = $660.38 + $453.59 + $267.96 + $496.83 = $1,918.76

Joey Is Planning to Invest His Savings in a Fixed