Time Value of Money: Basics Using Table 12A.1 and Table 12A.2 of this chapter, d

Question

Time Value of Money:

Basics Using Table 12A.1 and Table 12A.2 of this chapter, determine the answers to each of the following independent situations. (Round answers to the nearest whole number.)

(a) The future value in three years of $2,000 deposited today in a savings account with interest compounded annually at 4 percent.

(b) The present value of $9,000 to be received in six years, discounted at 12 percent.

(c) The present value of an annuity of $5,000 per year for seven years discounted at 18 percent.

(d) An initial investment of $42,680 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 10 percent

e) A proposed investment will provide cash flows of $30,000, $9,000, and $6,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 14 percent, determine the present value of these cash flows.

Year 1 ___

Year 2 ___

Year 3 ___

(f) Find the present value of an investment that will pay $9,000 at the end of Years 10, 11, and 12. Use a discount rate of 12 percent.

Explanation / Answer

Solution:

a.

b

c.

e.

Amount to be invested 2,000 Number of periods = 3 years 3 Rate per period , 4% 4.00% Future value = $ 2,000 * FVIF @ 4 % for 3 years FVIF @ 8 % for 5 years 1.125 Future value = 2,249.73

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