Problem 9-10 Present value LO3] How much would you have to invest today to recei

Question

Problem 9-10 Present value LO3] How much would you have to invest today to receive: Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. $15,000 in 8 years at 10 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) b. $20,000 in 12 years at 13 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) c. $6,000 each year for 10 years at 9 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) d. $50,000 each year for 50 years at 7 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Input variables: $15,000 a. Future value a. Number of years a. Interest rate b. Future value b. Number of years b. Interest rate c. Annuity payment c. Number of years c. Interest rate d. Annuity payment d. Number of years d. Interest rate a. Appendix factor b. Appendix factor c. Appendix factor d. Appendix factor 8 years 0.10 $20,000 12 years 0.13 $6,000 10 years 0.09 $50,000 50 years 0.07 467 231 6.418 13.801

Explanation / Answer

Present Value (non-annuity) can be calculated using the following formula

Future Value/(1+interest rate)no. of periods

Present Value (annuity payment) can be calculated using the following formula

Annuity((1-(1+rate)-no. of period)/rate)

Appendix value can be calculated as follows

a) 1/1.18 = 0.467

b) 1/1.1312 = 0.231

c) (1-1.09-10)/.09 = 6.418

d) (1-1.07-50)/.07 = 13.801

Future Value (FV) no. of years (n) Interest rate (i) Present Value (PV) PV Calculation PV using Appendix a                              15,000                             8 10%                       6,997.61 15000/(1.1)8 7005 (15000*0.467) b                              20,000                           12 13%                       4,614.12 20000/(1.13)12 4620(20000*0.231)

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