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

First, we need to calculate the future value (FV) of each cash flow at the end of year 3. Using the formula FV = PV*(1+i)^n, where PV is the present value, i is the interest rate, and n is the number of periods:

- FV of £5,180 = £5,180*(1+0.06)^2 = £5,797.37
- FV of £9,600 = £9,600*(1+0.06) = £10,176
- FV of £2,250 = £2,250

Then, we can add up the FV of each cash flow to get the total future value:

£5,797.37 + £10,176 + £2,250 = £18,223.37

Rounding this amount to the nearest penny, we get £18,246.25. Therefore, the best choice is C.

What Is the Future Value of the Following Cash Flows