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Future Value with Uneven Cash Flows – Future value due

Future Value with Uneven Cash Flows – Future value due

Future value with uneven cash flows will be received from different uneven cash flows which are deposited or invested with appropriate discount rate during more than one period.

The cash flows due occur at the beginning of the each period.

Time Line

Question

Miss. Muy Ny lends her friend monthly $200, $400,$500 and $700  for January, February, March and April respectively with interest rate of 2 % per month. How much money will Muy Ny have in the next 4 months? (Assume her friend received cash from Miss. Muy Ny at the beginning of each month.)

Solution

Time Line

FV     =200(1+0.02)4 + 400(1+0.02)3 + 500(1+0.02)2 + 700(1+0.02)1

=200*1.0824 + 400*1.0612 + 500*1.0404 + 700*1.0200

= 1,875

This means that in the 4 months Muy Ny will have $1,875

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