Suppose you receive $100 at the end of each year for the next three years.
- If the interest rate is 8%, what is the present value of these cash flows?
- What is the future value in three years of the present value you computed in (a)?
- Suppose you deposit the cash flows in a bank account that pays 8% interest per year. What is the balance in the account at the end of each of the next three years (after your deposit is made)? How does the final bank balance compare with your answer in (b)?