1.
Given the following cash flows that earns 5% interest compounded annually, what is the
equivalent amount of the cash flows shown below at the end of year 3?
N
Amount
0
-$1,000
1
-$1,000
2
$1,210
3
$1.950
N Amount
0 -$1,000
1 -$1,000
2 $1,210
3 $1.950
Solution
5% N Amount FV FV of Cash Flows 0 ($1,000) 1.157625 ($1,158) 1 ($1,000) 1.1025
($1,102.50) 2 $1,210 1.05 $1,270.50 3 $1,950.00 1 $1,950.00 $960.38