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