The government has imposed a fine on the Not-So-Legal Company. The fine calls for annual payments of $100,000, $250,000, and $250,000, respectively over the next three years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including investment earnings, to a national health center. The government will earn 3.5 percent on the funds held. How much will the national health center receive three years from today?

Question

Business

Keon Ballard

12 August, 09:57

The government has imposed a fine on the Not-So-Legal Company. The fine calls for annual payments of $100,000, $250,000, and $250,000, respectively over the next three years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including investment earnings, to a national health center. The government will earn 3.5 percent on the funds held. How much will the national health center receive three years from today?

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Answers (1)

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Julianna Simpson · Answer 1

Total final value = $615,872.5

Explanation:

Giving the following information:

The fine calls for annual payments of $100,000, $250,000, and $250,000, respectively over the next three years. The first payment is due one year from today. The government will earn 3.5 percent on the funds held.

To calculate the final value we need to use the following formula on each pay:

FV = PV * (1+i) ^n

If the amount required is 3 years from now, the last payment will not generate interest because time won't pass.

Year 1 = 100,000*1.035^2 = 107,122.5

Year 2 = 250,000*1.035 = 258,750

Year 3 = 250,000

Total = $615,872.5