Connect Connect Financial Calculate. N Num + x htt tice for Homework 2 (Ch 4) 6

Question

Connect Connect Financial Calculate. N Num + x htt tice for Homework 2 (Ch 4) 6 Submimed 4 Problem 4-23 Comparing Cosh Flows (LG4-5) What would be more valuable, receiving $400 today or receiving $575 in three years if interest rates are 8 percent? s awarded cored receving $400 today cored receiving $575 future Book Explanation P 3575/41 0.08)3 8575/ 1.259712 - 3456.45 The present velue of $575 to be paid in three years at 8 percent inserest is $456 45. This amount is worth more than the $400 received t Therefore, the $575 received future is more valuable OrN#3, 1-8, PlIT . 0, FV ?-575 CPT PV-: 456 454

Explanation / Answer

Problem 4-23 receiving $ 575 future Working: Present value of receiving $ 575 in 3 years = F*(1+i)^-n Where, = 575*(1+0.08)^-3 = $ 456.45 F $        575 i 8% n 3 Present Value of receiving $ 575 in 3 years is more worthy than Receiving $ 400 today. So, receiving $ 575 future is more valuable. Problem 4-21 a. Future value $ 3,820.25 Working: Future Value = Present Value *(1+i)^n Where, = 2600*(1+0.08)^5 i $       2,600 = $ 3,820.25 n 8% b. Total Interest earned $ 1,220.25 Working: Future Value $ 3,820.25 Present Value $ 2,600.00 Total Interest earned $ 1,220.25 c. Interest earned on Interest $     180.25 Working: Total Interest earned $ 1,220.25 Simple interest $ 1,040.00 (2600*8%*5) Interets earned on Interest $     180.25

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