Future Value Compute the future value in year 10 of a $3,000 deposit in year 1 a
ID: 2734629 • Letter: F
Question
Future Value Compute the future value in year 10 of a $3,000 deposit in year 1 and another $4,500 deposit at the end of year 4 using a 10 percent interest rate. Present Value Compute the present value of a $3,000 deposit in year 2 and another $4,500 deposit at the end of year 5 using 6 percent interest rate. Present Value of a Perpetuity What's the present value a bond issued by UK Treasury with par value of 1000 pound, that promised to give investor 50 pounds per year forever, if interest rate is 4 percent? Present Value of an Annuity Due If the present value of an ordinary, 10-year annuity is $10,500 and interest rate is 6.5 percent. What is the present value of the same annuity due? Effective Annual Rate A loan is offered with monthly payments and an 8 percent APR. What's the loan's effective annual rate (EAR)?Explanation / Answer
1.Future value :
Assume that deposit was made at the begining of the year 1.
Future value of deposit of $3000 = $3000*(1.10) power10
= 7781.22
Future value of deposit of $4500 at the end of 4th year = $4500*(1.10)power 4
= $6588.45
2.Present value:
Present value of $3000 in year at 6% = $3000*(0.9434)
= $2830 (at begining of 2nd year)
Present value of $4500 at the end of 5th year = $4500*0.7472
= $3362.66
3.Present value of perpetuity :
since there is a fixed payment of 50 pounds and rate of interest of 4%.
present value of perpetuity = 50/0.04
= 1250
4.Present value of an annuity due :
Formula for present value of annuity =(1+r)*p{1-1/(1+r)power to n/r)
= (1+0.065)*10500{1-1/1.065power to 10/0.065)
= $80387.26(approximately)
5.Effective Annual rate :
EAR is used to determine the actual annual rate that would be paid on a loan or investment if the stated annual rate is affected by compounding.
=8.3% ((1+0.08/12)power to 12-1)
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