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Capstone Checkpoint-Present value, Future Value and Annuity Due

Capstone Checkpoint-Present value, Future Value and Annuity Due

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3. You will receive $5,000 three years from now. The discount rate is 8 percent. a. What is the value of your investment two years from now? Multiply $5,000 _ .926 (one year’s discount rate at 8 percent). FV = 5,000; rate = 8%; N = 1 years; PV =? PV = FV x PVIF8%, 1 year = 5,000 x 0.926 = $4,630 b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year's discount rate at 8 percent). FV = 4,630; rate = 8%; N = 1 years; PV =? PV = FV x PVIF8%, 1 year = 4,630 x 0.926 = $4,287.38 c. What is the value of your investment today? Multiply your answer to part b by .926 (one year's discount rate at 8 percent). FV = 4,287.38; rate = 8%; N = 1 years; PV =? PV = FV x PVIF8%, 1 year = 4,287.38 x 0.926 = $3,970.11 d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n _ 3 and i _ 8 percent. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference due to rounding.
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Unformatted text preview: FV = 5,000; rate = 8%; N = 3 years; PV =? PV = FV x PVIF8%, 3 year = 5,000 x 0.794 = $3,970 4. If you invest $9,000 today, how much will you have: a. In 2 years at 9 percent? PV = 9,000; rate = 9%; N = 2 years FV = PV x FVIF9%, 2 years = 9,000 x 1.188 = $10,692 b. In 7 years at 12 percent? PV = 9,000; rate = 12%; N = 7 years FV = PV x FVIF12%, 7 years = 9,000 x 1.188 = $10,692 c. In 25 years at 14 percent? PV = 9,000; rate = 9%; N = 2 years FV = PV x FVIF9%, 2 years = 9,000 x 2.211 = $19,899 d. In 25 years at 14 percent (compounded semiannually)? PV = 9,000; rate = 14%; N = 25 years FV = PV x FVIF14%, 25 years = 9,000 x 26.461 = $238,149 5. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent, which should you choose? Option 1: FV = 30,000; N = 50 years; Rate = 12% PV = FV x PVIF12%, 50 years = 30,000 x 0.003 = $90 Option 2: PV = $95 Choose the second option accepting $95 today...
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