# FIN200- FV, PV and Annuity Due CP

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

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.

1. 👍
2. 👎
3. 👁
1. 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.

1. 👍
2. 👎

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