To compute future value (fv) of a single sum, use Table A1 in the appendix and t

Question

To compute future value (fv) of a single sum, use Table A1 in the appendix and the formula: fv = pv * factor. To find the present value (pv) of a known future amount, use Table A2 in the appendix and the formula pv = fv * factor.

Question 1: You invest $3000 for 8 years and expect to earn 9%, on average, per year. What is the fv ? Solve, using Table A1.

Question 2: You want to have $6000 eight years from today to purchase a G. Loomis fishing rod and a Van Staal fishing reel. You expect to earn 9%, on average. How much should you invest today to reach your target in 8 years ? Solve, using Table A2. Be sure to show the formula and your "plug-in's, then solve. Show all the steps in your work.

Fundamentals of Corporate Finance, 10th edition AUTHOR:       Ross, Westerfield, Jordan

Explanation / Answer

fv = pv *fv factor

fv factor for 8 years 8%=1.851

fv factor for 8 years 10%=2.144

so by linear transform

fv factro for 8 years 9%=(1.851+2.144)/2 =1.9975

fv =3000*1.9975 =$5992.5

2. pv = fv/fv factor

pv = 6000/1.9975 =$3003.75

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