1.)A deposit of $350 earns the following interest rates: (a) 8 percent in the fi

Question

1.)A deposit of $350 earns the following interest rates: (a) 8 percent in the first year, (b) 7 percent in the second year, and (c) 5 percent in the third year. What would be the third year future value? 2.) Compute the present value of a $850 payment made in 10 years when the discount rate is 12 percent? Recalculate the present value, using an 11-percent discount rate, and again, using a 13-percent discount rate. 3.) What annual rate of return is earned on a $5,000 investment when it grows to $9,500 in five years? Recalculate the rate of return, assuming the growth occurred in four years, and again, assuming the growth occurred in six years. 4.) What is the future value of a $500 annuity payment over five years if interest rates are 9 percent? Recalculate the future value at 8 percent interest, and again, at 10 percent interest. 5.) What is the present value of a $700 annuity payment over four years if interest rates are 10 percent? Recalculate the present value at 9 percent interest, and again, at 11 percent interest.

Explanation / Answer

(c) 5 percent in the third year. What would be the third year future value

Compute the value in 25 years of a $1,000 deposit earning 10 percent per year.

FVN   = PV × (1 + i)N                               

FV25 = 1000 × (1 + 0.10)25                      

         = 1000 × 10.83471

                                                   = 10,834.71

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