PROBLEM 1 Find the following values for a lump sum assuming annual compounding:

Question

PROBLEM 1 Find the following values for a lump sum assuming annual compounding: a. The future value of $7,500 invested at 4.52 percent for one year b. The future value of $7,500 invested at 4.52 percent for five years c. The present value of $8,700 to be received in one year when the opportunity cost rate is 3.5 percent d. The present value of $8,700 to be received in five years when the opportunity cost rate is 3.5 percent PROBLEM 1 Find the following values for a lump sum assuming annual compounding: a. The future value of $7,500 invested at 4.52 percent for one year b. The future value of $7,500 invested at 4.52 percent for five years c. The present value of $8,700 to be received in one year when the opportunity cost rate is 3.5 percent d. The present value of $8,700 to be received in five years when the opportunity cost rate is 3.5 percent

Explanation / Answer

PV = FV/(1+r)^n

PV - Present value

FV - Future value

r - Interest rate

n - no. of periods

a.

FV = 7500*(1+0.0452)^1 = $7839.00

b.

FV = 7500*(1+0.0452)^5 = $9355.31

c.

PV = 8700/(1+0.035)^1 = $8405.80

d.

PV = 8700/(1+0.035)^5 = $7325.17

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