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April 20, 2014

April 20, 2014

Posted by **Joy** on Tuesday, January 26, 2010 at 6:11pm.

Thank You

Here is the assignment- Please contact me here with any help you canm provide.

Present Value, Future Value, and Annuity Due

3. You will receive $5,000 three years from now. The discount rate is 8 percent.

a. What is the value of your investment two years from now? Multiply $5,000 _ .926 (one year’s discount rate at 8 percent).

FV = 5,000

Rate= 8%

N= 1 year

PV= unknown

PV = FV x PVIF/8% ^ 1

= 5,000 x 0.926

= 4,630

b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year’s discount rate at 8 percent).

FV= 4,630

Rate= 8%

N = 1 year

PV= unknown

PV = FV x PVIF/8% ^ 1

= 4,630 x 0.926

= 4,287.38

c. What is the value of your investment today? Multiply your answer to part b by .926 (one year’s discount rate at 8 percent).

FV= 4,287.38

Rate= 8%

N= 1 year

PV = unknown

PV = FV x PVIF/8% ^ 1

= 4,287.38 x 0.926

= 3,970.11

d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n _ 3 and i _ 8 percent. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference due to rounding.

FV = 5,000

Rate = 8%

N = 3 years

PV= unknown

PV = FV x PVIF/8% ^ 3

= 5,000 x 0.794

= 3,970

4. If you invest $9,000 today, how much will you have:

a. In 2 years at 9 percent?

PV = 9,000

Rate= 9%

N= 2 years

FV = PV x FVIF/ 9% ^ 2

= 9,000 x 1.188

= 10, 692

b. In 7 years at 12 percent?

PV = 9,000

Rate= 12%

N= 7 years

FV = PV x FVIF/ 12% ^ 7

= 9,000 x 2.210

= 19890.00

c. In 25 years at 14 percent?

PV = 9,000

Rate= 12%

N= 7 years

FV = PV x FVIF/ 14% ^ 25

9000 x (1 +.14) ^25

= 9,000 x 26.46

= 238,157.24

d. In 25 years at 14 percent (compounded semiannually)?

Semiannual Compounding requires an individual to divide the interest rate by 2 and doubling the number of periods which would be an interest rate of 7 % and a period of 50 years in this case.

PV = 9,000

Rate= 7%

N= 50 years

FV = PV x FVIF/ 7% ^ 50

9,000 x (1 + 0.7) ^ 50

= 9,000 x 3.330

= 269,730.00

5. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent, which should you choose?

FV= 30,000

N = 50 years

Rate= 12%

PV = FV x PVIF/ 12 % ^50

3000 / (1 + .12) ^ 50 = 103.81

Taking into consideration that 30,000 has a high present value I would take the first option.

- FIN200- FV, PV and Annuity Due CP -
**emily**, Thursday, August 5, 2010 at 2:21amTake the $95. Assuming you take the $95 and compound it daily at an annual rate of 12% for 50 years you would have $38,287.96 which is obviously more than $30,000.

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