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25 February, 10:41

You put $100 in the bank now, $200 in the bank a year from now, and $300 in the bank in two years. How much money will you have available 3 years from now if you earn a 7.5% rate of interest? (Calculate the future value of this stream of cash flows. Refer to Example 5.6.)

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  1. 25 February, 10:49
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    End of year 3: $677.85

    Explanation:

    If the interest rate is annual effective:

    Year 0 (now) : $100

    In a year from now I will have:

    End of Year 1: $100*1,075 = 107.5

    Then I put $200 more, i will have $307.5

    Begging of year 2: $307.5

    In two years from now I will have:

    End of year 2: $307.5*1.075 = $330.56

    Then I put $300 more, i will have $660.56

    Begging of year 3: $660.56

    In three years from now i will have:

    $660.56*1,075 = $677.85

    End of year 3: $677.85
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