Present and future values for different interest rates Find the following values
ID: 2732242 • Letter: P
Question
Present and future values for different interest rates
Find the following values. Compounding/discounting occurs annually. Round your answers to the nearest cent.
An initial $800 compounded for 10 years at 9%.
$
An initial $800 compounded for 10 years at 18%.
$
The present value of $800 due in 10 year at a discount rate of 9%.
$
The present value of $2,435 due in 10 years at 18%.
$
The present value of $2,435 due in 10 years at 9%.
$
Define present value.
The present value is the value today of a sum of money to be received in the future and in general is less than the future value.
The present value is the value today of a sum of money to be received in the future and in general is greater than the future value.
The present value is the value today of a sum of money to be received in the future and in general is equal to the future value.
The present value is the value in the future of a sum of money to be received today and in general is less than the future value.
The present value is the value in the future of a sum of money to be received today and in general is greater than the future value.
-Select-IIIIIIIVVItem 6
How are present values affected by interest rates?
Explanation / Answer
Let Future Value be FV and Present Value be PV
1. FV = PV*(1+r)n = $800*(1+9%)10 = $800*2.3674 = $1,893.92
2. FV = PV*(1+r)n = $800*(1+18%)10 = $800*5.2338 = $4,187.04
3. PV = FV/(1+r)n = $800/(1+9%)10 = $800/2.3674 = $337.92
4. PV = FV/(1+r)n = $2,435/(1+18%)10 = $2,435/5.2338 = $465.25
5. PV = FV/(1+r)n = $2,435/(1+9%)10 = $2,435/2.3674 = $1,028.55
6. The present value is the value today of a sum of money to be received in the future and in general is less than the future value.
7. Present Values are inversely proportionate to interest rates as from the above we can see that present value decrease as interest rate increase and vice versa.
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