A trusted friend told you that a cash flow sequence that started at $3000 in year 1 and increased by $2000 each year would be worth $15,000 in 12 years at a rate of return of 10% per year. Is she correct?
What will be an ideal response?
15,000 = 3000 + 2000(A/G,10%,n)
(A/G,10%,n) = 6.0000
From 10% table, n is between 17 and 18 years; therefore, n = 18 years. She is not correct; it takes longer.
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What will be an ideal response?
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