11.13 Uneven Cash Flows (Solutions)
Solution Guidelines: First, fill-in the first or uppermost cell in the PVF column by dividing 1 by 1.06; then fill in each subsequent lower cell by once again dividing by 1.06 iteratively – or by copying the rates from the tables. Next, multiply each cash flow horizontally by the appropriate PVF. Aggregate.
In order to complete the FVF column, start at the bottom-most cell and fill in 1.00; in the next cell up, fill in 1.06. As you go up, continue multiplying by 1.06. Remember, the arrows in the FV timeline are pointed in the other direction.
Take note of the fact that the PV of the series is less than its nominal value and that the FV is greater. You will also note that, if you know the PV of the uneven series, you can simply multiply it by (1 + Rn) in order to arrive at the FV of the series. Wow!
(If you were unable to solve question #3 on Some TVM Practice Questions, you can go back to it now.)