Time Value of Money: Basics Using Table 12A.1 and Table 12A.2 of this chapter, d

Question

Time Value of Money: Basics
Using Table 12A.1 and Table 12A.2 of this chapter, determine the answers to each of the following independent situations. (Round answers to the nearest whole number.)

(a) The future value in two years of $3,000 deposited today in a savings account with interest compounded annually at 4 percent.
$ Answer

(b) The present value of $8,000 to be received in four years, discounted at 8 percent.
$ Answer

(c) The present value of an annuity of $3,000 per year for four years discounted at 16 percent.
$ Answer

(d) An initial investment of $37,260 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 6 percent.
$ Answer

(e) A proposed investment will provide cash flows of $50,000, $8,000, and $5,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 16 percent, determine the present value of these cash flows.
Year 1 $ Answer
Year 2 $ Answer
Year 3 $ Answer

(f) Find the present value of an investment that will pay $9,000 at the end of Years 10, 11, and 12. Use a discount rate of 10 percent.
$ Answer

Explanation / Answer

a Future Value = Present value ( 1+r)n r = Rate of interest n = Time period FV = 3000(1+.04)2 3000*1.0816 Future Value = $3,244.80 b Present Value = Future Value /(1+r)n 8000/(1.08)^4 8000*0.735 $5,880.24 C Present Value = 3000*2.798 $8,394.54 e PV = 50000/(1.16)+8000/(1.16)^2+5000/(1.16)^3 5000*.862+8000*.743+5000*.640 43103.45+5945.30+3203.28 $52,252.04

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