Cash flow:
0 1200 0 500
|_________|_______|______|
i=interest=0.12
P=present value (at appropriate time)
F=future value at end of year 3
n=number of elapsed years
we define:
F/P(P,i,n)=future value of P after n years with interest rate i
=P(1+i)^n
Value at end of third year is the sum of the value of individual years
=F/P(0,0.12,3)+F/P(1200,0.12,2)+F/P(0,0.12,1)+F/P(500,0.12,0)
=0+1505.28+0+500
=2005.28
