The annual cash flows for year 1 is $500; year 2 is $400; and year 3 is $300. The opportunity cost is 7.5%. Future value of an annuity is the total future value of a series of periodic payments made at the end of each year at a given interest rate for a specified period. F V = [ ( P M T × ( 1 + r ) n − 1 ) + ( P M T × ( 1 + r ) n − 2 ) + ( P M T × ( 1 + r ) n − 3 ) ] Future value of an annuity due is the total future value of a series of periodic payments made at the beginning of each year at a given interest rate for a specified period. F V = [ ( P M T × ( 1 + r ) n − 0 ) + ( P M T × ( 1 + r ) n − 1 ) + ( P M T × ( 1 + r ) n − 2 ) ] Here, The future value is “ FV ”. The annual payment on investment is “ PMT ”. The interest rate is “ r ”. The maturity period is “ n ”.

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Chapter 4, Problem 16PROB

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The annual cash flows for year 1 is $500; year 2 is $400; and year 3 is $300. The opportunity cost is 7.5%.

Future value of an annuity is the total future value of a series of periodic payments made at the end of each year at a given interest rate for a specified period.

FV=[(PMT×(1+r)n−1)+(PMT×(1+r)n−2)+(PMT×(1+r)n−3)]

Future value of an annuity due is the total future value of a series of periodic payments made at the beginning of each year at a given interest rate for a specified period.

FV=[(PMT×(1+r)n−0)+(PMT×(1+r)n−1)+(PMT×(1+r)n−2)]

Here,

The future value is “FV”.

The annual payment on investment is “PMT”.

The interest rate is “r”.

The maturity period is “n”.

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