Question

Mike is planning to invest his savings in a savings account. He manages to deposit $1,000 at the end of the first year, $700 at the end of the second year, $1,500 at the end of the third year, and $600 at the end of the fourth year. If the account earns 7 percent interest each year, what is the terminal value of this uneven cash flow stream

Answer 1

Answer: $4,231.47

Step-by-step explanation:

The terminal value is the value of the various payments at the end of year 4.

This means that for every deposit, we need to find the future value up to year 4.

The first payment would therefore accrue for 3 years as it would be deposited at the end of the first year, the second would accrue for 2 years and the third would accrue for a year.

= (1,000 * (1 + 7%)³) + (700 * 1.07²) + (1,500 * 1.07) + 600

= 1,225.043 + 801.43 + 1,605 + 600

= $4,231.47