FIN200 FV, PV and Annuity Due CP
posted by Joy on .
I just want to know if anyone can help me in determining if I am on track with this assignment and if anyone can point out where I am wrong and how I need to fix it. I have already completed this assignment on my own and need someone to review it.
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.

Take 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.