Problem 9-2 Present value [L03] What is the present value of: Use Appendix B as

Question

Problem 9-2 Present value [L03] What is the present value of: Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods a. $7,900 in 10 years at 11 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) b. $16,600 in 5 years at 9 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) c. $26,000 in 14 years at 6 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Input variables: $7,900 Future value Number of years Interest rate 10 years 0.11 b. Future value Number of years Interest rate $16,600 5 years 0.09 C. Future value Number of years Interest rate $26,000 14 years 0.06 Table value factors: .352 650 .442 b. C.

Explanation / Answer

Part a)

The present value with the use of formula is calculated as below:

Present Value = Future Value/(1+Interest Rate)^Years = 7,900/(1+11%)^10 = $2,782.26

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The present value can also be calculated with the use of PV function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate (I/Y) = Interest Rate, Nper (N) = Period, PMT = Payment (if any) and FV= Future Value.

Here, Rate = 11%, Nper = 10, PMT = 0 and FV = $7,900

Using these values in the above function/formula for PV, we get,

Present Value = PV(11%,10,0,7900) = $2,782.26

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Part b)

The present value with the use of formula is calculated as below:

Present Value = Future Value/(1+Interest Rate)^Years = 16,600/(1+9%)^5 = $10,788.86

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The present value can also be calculated with the use of PV function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate (I/Y) = Interest Rate, Nper (N) = Period, PMT = Payment (if any) and FV= Future Value.

Here, Rate = 9%, Nper = 5, PMT = 0 and FV = $16,600

Using these values in the above function/formula for PV, we get,

Present Value = PV(9%,5,0,16600) = $10,788.86

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Part c)

The present value with the use of formula is calculated as below:

Present Value = Future Value/(1+Interest Rate)^Years = 26,000/(1+6%)^14 = $11,499.83

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The present value can also be calculated with the use of PV function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate (I/Y) = Interest Rate, Nper (N) = Period, PMT = Payment (if any) and FV= Future Value.

Here, Rate = 6%, Nper = 14, PMT = 0 and FV = $26,000

Using these values in the above function/formula for PV, we get,

Present Value = PV(6%,14,0,26000) = $11,499.83

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Tabular Representation:

a. Present Value $2,782.26 b. Present Value $10,788.86 c. Present Value $11,499.83 Table Value Factors: a. (7,900*.352) $2,780.80 b. (16,600*.650) $10,790.00 c. (26,000*.442) $11,492.00

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