1.) You will require $740 in 6 years. If you earn 4% interest on your funds, how
ID: 2772714 • Letter: 1
Question
1.) You will require $740 in 6 years. If you earn 4% interest on your funds, how much will you need to invest today in order to reach your savings goal? (Do not round intermediate calculations. Round answer to 2 decimal places.)
Present value: $_________
2.) Compute the future value of a $170 cash flow for the same combinations of rates and times: (Do not round intermediate calculations. Round answer to 2 decimal places.)
Future Value
a. r = 10%, t = 9 years $
b. r = 10%, t = 18 years
c. r = 5%, t = 9 years
d. r = 5%, t = 18 years
3a.) What is the present value of a 3-year annuity of $170 if the discount rate is 5%? (Do not round intermediate calculations. Round answer to 2 decimal places.)
3b.) What is the present value of the annuity in (a) if you have to wait 2 years instead of 1 year for the first payment? (Do not round intermediate calculations. Round answer to 2 decimal places.)
1.) You will require $740 in 6 years. If you earn 4% interest on your funds, how much will you need to invest today in order to reach your savings goal? (Do not round intermediate calculations. Round answer to 2 decimal places.)
Present value: $_________
Explanation / Answer
Solution.
1. Present value: $585.
OR $740 x .7903 = $585.
2.)
Condition Future Value
a. r = 10%, t = 9 years $401
b. r = 10%, t = 18 years $945
c. r = 5%, t = 9 years $264
d. r = 5%, t = 18 years $409
*using simple interest formula for calculation.
3a.) present value of a 3-year annuity
Ans. $463
$170 x 2.723 = 462.91 or $463
3b . present value of the annuity
$170 x 5.075 = 862.75
Year P.V Amount Rate Interest 1 $585 4.00% $ 23 2 $608 4.00% $ 24 3 $633 4.00% $ 25 4 $658 4.00% $ 26 5 $684 4.00% $ 27 6 $712 4.00% $ 28Related Questions
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