Lucas will receive $7,100,$8,700,and $12,500 each year starting at the end of year one.What is the future value of these cash flows at the end of year five if the interest rate is 9 percent?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity, we can calculate the future value of each cash flow at the end of year five and then add them up:

$7,100 x (1+0.09)^{5-1} = $9,817.31
$8,700 x (1+0.09)^{5-2} = $10,876.20
$12,500 x (1+0.09)^{5-3} = $14,648.44

Then, we add up the three results:
$9,817.31 + $10,876.20 + $14,648.44 = $35,341.95

Therefore, the future value of the cash flows at the end of year five is $34,276 (rounded to the nearest dollar). The correct answer is (C).

Lucas Will Receive $7,100,$8,700,and $12,500 Each Year Starting at the End