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If interest is 5% compounded annually, calculate the future value of five year cash flows of $1,000 in year 1; $2,000 in year 2; $3,000 in year 3; $4,000 in year 4 and $5,000 in year 5.

Multiple Choice

$16,238.26


$16,638.26


$16,438.26


$16,838.26


$16,038.26

Answers

Answer 1

Option A. $16,238.26 is the closest approximation of the calculated future value.

To calculate the future value of the cash flows, we need to apply the compound interest formula:

Future Value = Present Value * [tex](1 + Interest Rate)^{Number of Periods}[/tex]

In this case, we have five cash flows over five years, and the interest rate is 5% compounded annually. Let's calculate the future value step by step:

Year 1: Future Value = $1,000 * [tex](1 + 0.05)^{1}[/tex] = $1,050

Year 2: Future Value = $2,000 * [tex](1 + 0.05)^{2}[/tex] = $2,205

Year 3: Future Value = $3,000 * [tex](1 + 0.05)^{3}[/tex] = $3,152.25

Year 4: Future Value = $4,000 * [tex](1 + 0.05)^{4}[/tex] = $4,310.06

Year 5: Future Value = $5,000 * [tex](1 + 0.05)^{5}[/tex] = $5,525.63

Now, we sum up all the future values:

Total Future Value = $1,050 + $2,205 + $3,152.25 + $4,310.06 + $5,525.63

Total Future Value = $16,243.94

Therefore, the closest option is A. $16,238.26.

It's important to note that the answer might differ slightly depending on the rounding method used at each step of the calculations. However, based on the given options, A. $16,238.26 is the closest approximation of the calculated future value. Therefore, the correct option is A.

The question was incomplete, Find the full content below:

If interest is 5% compounded annually, calculate the future value of five-year cash flows of $1,000 in year 1; $2,000 in year 2; $3,000 in year 3; $4,000 in year 4, and $5,000 in year 5.

Multiple Choice

A. $16,238.26

B. $16,638.26

C. $16,438.26

D. $16,838.26

E. $16,038.26

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Related Questions


Based on the economic theory and the article, provide an alternative item(s) to tax that would be more efficient. Explain why taxing that item would be more efficient.

Answers

One alternative item to tax that would be more efficient based on economic theory and the article are Pigouvian taxes, which are taxes on goods that have a negative externality.  This tax would be more efficient because it would reduce the negative externality of pollution and provide an incentive for people to use less gasoline.

A negative externality is a cost imposed on society that is not factored into the market price. For example, pollution from cars imposes costs on society in the form of health problems and environmental damage. A Pigouvian tax on gasoline would increase the price of gasoline to account for these costs and encourage people to drive less or use more fuel-efficient cars.

In contrast, a tax on soda would not address a negative externality and would likely be regressive, meaning it would disproportionately affect low-income individuals who spend a higher percentage of their income on soda. Additionally, the article mentioned that there are already many taxes on soda, and further taxing it may not significantly reduce consumption.

In contrast, a Pigouvian tax on gasoline would be a new tax that would effectively address a negative externality. Overall, Pigouvian taxes are a more efficient way to tax because they internalize the costs of negative externalities and encourage individuals to make more socially optimal choices.

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