Spreadsheet Solution:
Use formulas to find your answer by completing the FV Table:
a Interest Rate
Today
0.08
Year 1
0.08
Year 2
0.08
Year 3
0.08
Year 4
0.08
Year 5 Solution
0.08
b Time
1
2
3
4
c Cash Flow
100
200
200
200
5
518
d FV interest factor
e Future Value
1 First we must calculate the FV Interest Factor for each cash flow in row d. FVIF = (1+r)$^n$
In cell E33 enter the formula: = (1+E30)^4 and copy to cells G33 and H33
You must change the exponents in cells F33 through I33.
2 Then, we find the FV of each cash flow in row e.
In cell E34 enter the FV formula:CF x FVIF =E32*E33 and copy to cells F34 through I 34
3 Lastly, we sum the FVs to get the FV of the annuity in cell J34.
In cell J34 enter the formula: =sum(E34:I34)
4 Your answer should be: The FV of the cash flows is $1355.27
Note: You can change any of the inputs and Excel will automatically recompute.