Future Value: Uneven

Cash Flows and

Fluctuating Interest
Future Value: Uneven Cash Flows and Fluctuating Interest
1. What is the terminal future value of the following set of cash flows at the end of each year in five years when the
interest rate is 8% for all cash flows?

Period Cash Flow

Year 1 ₱10,000
Year 2 12,000
Year 3 15,000
Year 4 18,000
Year 5 20,000

2. Suppose you make an investment of P10,000 at the beginning of the year. This first year the investment returns 15%,
the second year it returns 12%, and the third year it returns 10%. How much would this investment be worth at the
end of three years, assuming no withdrawals are made?

3. Suppose you make an investment of P10,000 at the end of the year. This first year the investment returns 15%, the
second year it returns 12%, and the third year it returns 10%. How much would this investment be worth, assuming
no withdrawals are made?
Future Value: Uneven Cash Flows and Fluctuating Interest
4. Suppose I make an investment of P1,000 at the start of the year that investment return at 5%. On the second year, I
make P1,500 investment when the return of investment is at 5.5%. On the third year, I make P2,000 investment to
earn an interest of 6%. The investments are all earning compound interest. What is the future value of my investments
at the end of three years?
5. Suppose you make an investment of P1,000 at the end of the first year. This first year the investment returns 12%, the
second year it returns 6%, the third year it returns 8%, and on the fourth year the investment returns 7%. On the
second year, no investment is made and on the third year, P2,000 is made at the beginning of the year. On the fourth
year, P2,500 is made at the end of the year. How much would these investments be worth at the end of the fourth
year, assuming no withdrawals are made?
6. When I retire I expect to live for another 30 years. During those 30 years, I want to be able to withdraw P45,000 at the
BEGINNING of each year for my living expenses. How much money do I have to have in my retirement account to
make this happen? Assume that I can earn 8% on my investments.
7. You deposited P1,000 in a savings account that pays 8% interest, compounded quarterly, planning to use it to finish
your last year in college. Eighteen months later, you decide to go to SM Supermarket to become a bagger rather than
continue in school, so you close out your account. How much money will you receive?
8. I invest P10,000 each for the two years. During the first year, the investment earned 20%. During the second year, I
earned only 4% for that year. How much is my annuity due worth at the end of the two years?
Future Value: Uneven Cash Flows and Fluctuating Interest
9. Dave has a large sum of money that he wants to invest to finance his retirement. He has been presented with three
options. The first investment offers a 5% return for the first 5 years, a 10% return for the next 5 years, and a 20% return
thereafter. The second investment offers 10% for the first 10 years and 15% thereafter. The third investment offers a
constant 12% rate of return. Determine which of these investments is the best for Dave if he plans to retire in the
following number of years: (a) 15 years; (b) 20 years; and (c) 30 years.
Future Value: Uneven Cash Flows and Fluctuating Interest
1. What is the terminal future value of the following set of cash flows at the end of each year in five years when the
interest rate is 8% for all cash flows?

Period Cash Flow Invested at

Number of Amount FV Factor of Future
Year 1 ₱10,000 the End of
Periods Invested 1 at 8% Value
Year 2 12,000 the Year
Year 3 15,000 1 4 ₱10,000 1.360488960 ₱13,604.89
Year 4 18,000 2 3 12,000 1.259712000 15,116.54
Year 5 20,000 3 2 15,000 1.166400000 17,496.00
4 1 18,000 1.080000000 19,440.00
5 0 20,000 1.000000000 20,000.00
Total ₱85,657.43
Future Value: Uneven Cash Flows and Fluctuating Interest
2. Suppose you make an investment of P10,000 at the beginning of the year. This first year the investment returns 15%,
the second year it returns 12%, and the third year it returns 10%. How much would this investment be worth at the
end of three years, assuming no withdrawals are made?

Compound Accumulated
Compound 𝐅𝐕 𝐨𝐟 𝐏𝟏𝟎, 𝟎𝟎𝟎 = 𝐏𝟏𝟎, 𝟎𝟎𝟎 𝐱 𝟏. 𝟏𝟓 𝐱 𝟏. 𝟏𝟐 𝐱 𝟏. 𝟏𝟎
Period Interest Year-End
Interest 𝐅𝐕 𝐨𝐟 𝐏𝟏𝟎, 𝟎𝟎𝟎 = 𝐏𝟏𝟎, 𝟎𝟎𝟎 𝐱 𝟏. 𝟒𝟏𝟔𝟖
Calculation Balance
Year 1 P10,000 x 1.15 ₱1,500.00 ₱11,500.00 FV of P10,000 = P14,168.00

Year 2 P11,500 x 1.12 1,380.00 12,880.00

Year 3 P12,880 x 1.10 1,288.00 ₱14,168.00
Total ₱4,168.00
Future Value: Uneven Cash Flows and Fluctuating Interest
3. Suppose you make an investment of P10,000 at the end of the year. This first year the investment returns 15%, the
second year it returns 12%, and the third year it returns 10%. How much would this investment be worth, assuming
no withdrawals are made?

Compound Accumulated 𝐅𝐕 𝐨𝐟 𝐏𝟏𝟎, 𝟎𝟎𝟎 = 𝐏𝟏𝟎, 𝟎𝟎𝟎 𝐱 𝟏. 𝟏𝟐 𝐱 𝟏. 𝟏𝟎 𝐱 𝟏. 𝟎𝟎

Compound
Period Interest Year-End 𝐅𝐕 𝐨𝐟 𝐏𝟏𝟎, 𝟎𝟎𝟎 = 𝐏𝟏𝟎, 𝟎𝟎𝟎 𝐱 𝟏. 𝟐𝟑𝟐
Interest
Calculation Balance FV of P10,000 = P12,232.00

Year 1 P10,000 x 1.12 ₱1,200.00 ₱11,200.00

Year 2 P11,200 x 1.10 1,120.00 12,320.00
Year 3 P12,320 x 1.00 ₱12,320.00
Total ₱2,320.00
Future Value: Uneven Cash Flows and Fluctuating Interest
4. Suppose I make an investment of P1,000 at the start of the year that investment return at 5%. On the second year, I
make P1,500 investment when the return of investment is at 5.5%. On the third year, I make P2,000 investment to
earn an interest of 6%. The investments are all earning compound interest. What is the future value of my investments
at the end of three years?

Invested at
Number of Amount FV Factor of an Future
the Start of
Periods Invested Annuity Value
the Year
1 3 ₱1,000 1.174215000 ₱1,174.22
2 2 1,500 1.118300000 1,677.45
3 1 2,000 1.060000000 2,120.00
Total ₱4,971.67
Future Value: Uneven Cash Flows and Fluctuating Interest
5. Suppose you make an investment of P1,000 at the end of the first year. This first year the investment returns 12%, the
second year it returns 6%, the third year it returns 8%, and on the fourth year the investment returns 7%. On the
second year, no investment is made and on the third year, P2,000 is made at the beginning of the year. On the fourth
year, P2,500 is made at the end of the year. How much would these investments be worth at the end of the fourth
year, assuming no withdrawals are made?

Invested
Number of Amount FV of an Annuity Future
at the
Periods Invested Factor Value
During
1 3 ₱1,000 1.224936 ₱1,224.94
2
3 2 2,000 1.15560 2,311.20
4 0 2,500 1.00000 2,500.00
Total ₱6,036.14
Future Value: Uneven Cash Flows and Fluctuating Interest
6. When I retire I expect to live for another 30 years. During those 30 years, I want to be able to withdraw P45,000 at the
BEGINNING of each year for my living expenses. How much money do I have to have in my retirement account to
make this happen? Assume that I can earn 8% on my investments.

Invested
Number of Annuity FV Factor of Year-End Compound FV of Year-End
at the Future Value Period
Periods Due Annuity Balance Interest Balance
Beg. of
1 30 ₱45,000 10.062657 ₱452,819.56 Year 1 ₱45,000.00 ₱3,600.00 ₱48,600.00
2 29 45,000 9.317275 419,277.37 Year 2 93,600.00 7,488.00 101,088.00
3 28 45,000 8.627106 388,219.79 Year 3 146,088.00 11,687.04 157,775.04
4 27 45,000 7.988061 359,462.77 Year 4 202,775.04 16,222.00 218,997.04
5 26 45,000 7.396353 332,835.89 Year 5 263,997.04 21,119.76 285,116.81
25 6 45,000 1.586874 71,409.34
Year 25 3,289,767.30 263,181.38 3,552,948.68
26 5 45,000 1.469328 66,119.76
Year 26 3,597,948.68 287,835.89 3,885,784.58
27 4 45,000 1.360489 61,222.00
28 3 45,000 1.259712 56,687.04 Year 27 3,930,784.58 314,462.77 4,245,247.34
29 2 45,000 1.166400 52,488.00 Year 28 4,290,247.34 343,219.79 4,633,467.13
30 1 45,000 1.080000 48,600.00 Year 29 4,678,467.13 374,277.37 5,052,744.50
122.345868 ₱5,505,564.06 Year 30 5,097,744.50 407,819.56 ₱5,505,564.06
Future Value: Uneven Cash Flows and Fluctuating Interest
6. When I retire I expect to live for another 30 years. During those 30 years, I want to be able to withdraw P45,000 at the
BEGINNING of each year for my living expenses. How much money do I have to have in my retirement account to
make this happen? Assume that I can earn 8% on my investments.

(1 + i)n −1
FV of Annuity Due Factor = (1 + i)
i
(1.08)n −1
FV of Annuity Due Factor = (1.08)
.08
9.062656887
FV of Annuity Due Factor = (1.08)
.08
FV of Annuity Due Factor = 113.283211 x 1.08
FV of Annuity Factor = 122.345868

FV of Annuity Due of P45,000 = P45,000.00 x 122.345868

FV of Annuity Due of P45,000 = P5,505,564.06

Future Value: Uneven Cash Flows and Fluctuating Interest
7. You deposited P1,000 in a savings account that pays 8% interest, compounded quarterly, planning to use it to finish
your last year in college. Eighteen months later, you decide to go to SM Supermarket to become a bagger rather than
continue in school, so you close out your account. How much money will you receive?

Year-End Compound FV of Year- FV of a Single Amount = P1,000 x 1.02 x 1.02 x 1.02 X 1.02 X 1.02 X 1.02
Period
Balance Interest End Balance FV of a Single Amount = P1,000 x 1.12162419
Q1 ₱1,000.00 ₱20.00 ₱1,020.00
FV of a Single Amount = P1,126.16
Q2 1,020.00 20.40 1,040.40
Q3 1,040.40 20.81 1,061.21
Q4 1,061.21 21.22 1,082.43
Q1 1,082.43 21.65 1,104.08
Q2 1,104.08 22.08 ₱1,126.16
TOTAL ₱126.16
Future Value: Uneven Cash Flows and Fluctuating Interest
8. I invest P10,000 each for the two years. During the first year, the investment earned 20%. During the second year, I
earned only 4% for that year. How much is my annuity due worth at the end of the two years?

Invested Compound Accumulated

Number of Amount FV Factor of Compound
During the Future Value Period Interest Year-End
Periods Invested an Annuity Interest
Period Calculation Balance
1 2 ₱10,000.00 1.2480000 ₱12,480.00 Year 1 P10,000 x 1.20 ₱2,000.00 ₱12,000.00
2 1 10,000.00 1.0400000 ₱10,400.00 Year 2 P22,000 x 1.04 880.00 ₱22,880.00
Total 2.2880000 ₱22,880.00 Total ₱2,880.00
Future Value: Uneven Cash Flows and Fluctuating Interest
9. Dave has a large sum of money that he wants to invest to finance his retirement. He has been presented with three
options. The first investment offers a 5% return for the first 5 years, a 10% return for the next 5 years, and a 20% return
thereafter. The second investment offers 10% for the first 10 years and 15% thereafter. The third investment offers a
constant 12% rate of return. Determine which of these investments is the best for Dave if he plans to retire in the
following number of years: (a) 15 years; (b) 20 years; and (c) 30 years.

FV Factor of FV Factor of FV Factor of

Investment
Annuity Due for Annuity Due for Annuity Due for
Options
15 years 20 years 30 years
1 5.1146527 12.7268927 78.8015649
2 5.2169425 10.4931349 42.4505830
3 5.4735658 9.6462931 29.9599221