BUSINESS FINANCE FIN 3200 ASSIGNMENT # 1 1 Calculating Future Values Compute the
ID: 2808178 • Letter: B
Question
BUSINESS FINANCE FIN 3200 ASSIGNMENT # 1 1 Calculating Future Values Compute the future value of $1,000 compounded annually for a. 10 years at 6 percent b. 10 years at 12 percent c. 20 years at 6 percent d. Why is the interest earmed in part (c) not twice the amount earned in part (a)? Calculating Present Values 2 For each of the following, compute the present value: Present Value Interest Rate Future Value $ 13,827 43,852 725,380 590,710 15 13 17 26 3 Calculating Interest Rates Solve for the unknown interest rate in each of the following: Future Value Present Value $ 242 51,700 Years Interest Rate 345 927 152,184 538,600 410 16 27 18.750 4 Calculating the Number of Periods Solve for the unknown number of years in each of the following: Present Value Years Interest Rate Future Value $ 625 810 16,500 21,500 $ 1,284 4,341 402,662 147,350 12 17 5 Calculating the Number of Periods At 6.5 percent interest, how long does it take to 6 Calculating Present Values Imprudential, Inc., has an unfunded pension liability double your money? To quadruple it? of $550 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.4 percent, what is the present value of this liability? Calculating Future Values. For each of the following, compute the future value: 7 Future Value Present Value 18% $ 2,250 9,310 76,355 183,796 15 12 21Explanation / Answer
Ans 1) a) Future value = present value * ( 1 + interest rate)^ number of year
= 1000 * (1.06)^10
= $1790.85
Ans b) Future value = present value * ( 1 + interest rate)^ number of year
= 1000 * (1.12)^10
= $3105.85
Ans c) Future value = present value * ( 1 + interest rate)^ number of year
= 1000 * (1.06)^20
= $3207.14
Ans d) Interst earned with compounding not double with doubling the time period but increases more due to interest gained on the interest income as well.
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