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