You have just received a windfall from an investment you made in a friend's business. she will be paying you $ 39 comma 481 at the end of this year, $ 78 comma 962 at the end of next year, and $ 118 comma 443 at the end of the year after that (three years from today). the interest rate is 8.8 % per year. a. what is the present value of your windfall? b. what is the future value of your windfall in three years (on the date of the last payment)?

a. Present value is 194958

b. Future value is 251089

Explanation:

a. We use excel to get the present value.  We represent a cash flow and then we apply the formula

=VNA (required rate of return; Net cash flow from moment 0 to moment 3 )

See cash flow attached.  

Also we can use the interest formula and calculate each

The formula of interest is A=P (1+r)ⁿ

A=Final amount  

P= Principal ( deposit)  

r= interest rate

n= time

To get the Present value we are looking for the principal P

P= A/(1+r)ⁿ

P 1 year= 39481/ (1+0,088)¹ =36288

P 2 year= 78962/(1+0,088)²=66705

P 3 year= 118443/(1+0,088)³=91965

So Present Value is =36288+66705+91965=194958

b.

To get Future Value we can use the present value

FV=PV (1+r)ⁿ

FV= 194958 *(1,088)³=251089

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