3. Solve the following problems: i.Use equations or the tabular approach to find

Question

3. Solve the following problems:

i.Use equations or the tabular approach to find the following values. You may check your answers using a financial calculator. Disregard rounding differences.

An initial $500 compounded for 1 year at 6%

An initial $500 compounded for 2 years at 6%

The present value of $500 due in 1 year at a discount rate of 6%

The present value of $500 due in 2 years at a discount rate of 6%

ii.Use equations or the tabular approach (and a financial calculator to check your answers) to find the following values.

An initial $500 compounded for 10 years at 6%

An initial $500 compounded for 10 years at 12%

The present value of $500 due in 10 years at a discount rate of 6%

The present value of $500 due in 10 years at a discount rate of 12%

iii.Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1.

$400 per year for 10 years at 10%

$200 per year for 5 years at 5%

$400 per year for 5 years at 0%

Now rework parts a, b, and c assuming that payments are made at the beginning of the year.

Explanation / Answer

Part 1 (a)

FV = 500 * (1.06)

FV = 530

Part 1 (b)

FV = 500 * (1.06)2

FV = 561.8

Part 1 (c)

PV = 500/ (1.06)

PV = 471.70

Part 1 (d)

PV = 500/ (1.06)2

PV = 445

Part 2 (a)

FV = 500 * (1.06)10

FV = 895.42

Part 2 (b)

FV = 500 * (1.12)10

FV = 1,552.92

Part 2 (c)

PV = 500/(1.06)10

PV = 279.20

Part 2 (d)

PV = 500/ (1.12)10

PV = 160.99

Part 3 (a)

FV = 400 * (1.1)9 + 400 * (1.1)8 + 400 * (1.1)7 + 400 * (1.1)6 + .................+ 400 * (1.1) + 400

FV = 6,374.97

Part 3 (b)

FV = 200 * (1.05)4 + 200 * (1.05)3 + 200 * (1.05)2 + 200 * (1.05) + 200

FV = 1,105.13

Part 3 (C)

FV = 400 * (1)4 + 400 * (1)3 + 400 * (1)2 + 400 * (1) + 400

FV = 2000

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