Time Value of Money: Basics Using the equations and tables in Appendix 12A this

Question

Time Value of Money: Basics
Using the equations and tables in Appendix 12A 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 6 percent.
$Answer

(b) The present value of $12,000 to be received in four years, discounted at 12 percent.
$Answer

(c) The present value of an annuity of $3,000 per year for five years discounted at 14 percent.
$Answer

(d) An initial investment of $48,015 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 12 percent.
$Answer

(e) A proposed investment will provide cash flows of $30,000, $12,000, and $9,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 20 percent, determine the present value of these cash flows.

(f) Find the present value of an investment that will pay $7,500 at the end of Years 10, 11, and 12. Use a discount rate of 14 percent.
$Answer

Year 1 $Answer Year 2 $Answer Year 3 $Answer

Explanation / Answer

a)

b)

c)

d)

Future value PV×(1+r)^n Here, 1 Interest rate per annum 6.00% 2 Number of years                            2 3 Number of compoundings per per annum                            1 1÷3 Interest rate per period ( r) 6.00% 2×3 Number of periods (n)                            2 Present value (PV) $               3,000 Future value $         3,370.80 3000*(1+6%)^2

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