MATH SOLVE

5 months ago

Q:
# Joey is planning to invest his savings in a fixed income fund. He manages to deposit $700 at the end of the first year, $500 at the end of the second year, $300 at the end of the third year, and $600 at the end of the fourth year. If the fund earns 6 percent interest each year, the terminal value of this uneven cash flow stream at the end of Year 4 is _____.

Accepted Solution

A:

Answer:$2313.51Step-by-step explanation:Here we calculate the future value for each cash flow and add them up.Given he deposited $700 at the end of the first year .Here time to maturity is 3years and interest rate is 6%.[tex]FV=C(1+r)^{t}[/tex]= [tex]700(1+0.06)^3=$833.71[/tex] Given he deposited $500 at the end of the second year .Here time to maturity is 2 years and interest rate is 6%.[tex]FV=C(1+r)^{t}[/tex]= [tex]500(1+0.06)^2=$561.8[/tex].Given he deposited $300 at the end of the third year .Here time to maturity is 1years and interest rate is 6%.[tex]FV=C(1+r)^{t}[/tex]= [tex]300(1+0.06)^1=$318[/tex].Also given that he deposited $600 at the end of fourth year .There will be no interest on this amount as it is done at the end.Terminal value=833.71+561.8+318+600=$2313.51