Ch. 2 Self Test Problems

Ch. 2 Self Test Problems - Self Test P roblems 2.1 Periods...

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Self Test Problems 2.1 - Periods are often years, but can also be quarters or months or even days. - Time line T=0 4% Year 1 Year 2 Year 3 PV = $2,000 $2,080 $2,163.20 $2,249.73 FV(1) = PV + INT FV (1) = PV(1+I) FV(1) = $2000 +$2000(1+ .04) FV(1) = $2,080 2.2 - A dollar in hand today is worth more than a dollar to be received in the future because, if you had it now, you could invest it, earn interest, and end up with more than a dollar in the future. - Compounding – the process of going to future values from present values. 10% Year 1 Year 2 Year 3 Year 4 Year 5 PV = $100 $110 $121 $133.10 $146.41 $161.05 - PV = 2000 If I = 5% If I = 6% If I =20%
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N = 3 FV = $2,315.25 FV = $2,382.03 FV = $3,456.00 I = 4% FV = $2,249.73 - PV = $100 million N = 10 I = 8% FV = $215.89 - PV = $ 1.00 If I =10% N = 100 FV = $13,780.61 I = 5% FV = $131.50 2.3 - Discounting is the reverse of Compounding; if you know the PV you can then find the FV. FV = PV (1+I)^N
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Ch. 2 Self Test Problems - Self Test P roblems 2.1 Periods...

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