Question

Below is a table for the present value of $1 at Compound interest.

Year	6%	10%	12%
1	0.943	0.909	0.893
2	0.890	0.826	0.797
3	0.840	0.751	0.712
4	0.792	0.683	0.636
5	0.747	0.621	0.567

Below is a table for the present value of an annuity of $1 at compound interest.

Year	6%	10%	12%
1	0.943	0.909	0.893
2	1.833	1.736	1.690
3	2.673	2.487	2.402
4	3.465	3.170	3.037
5	4.212	3.791	3.605

Using the tables above, what would be the present value of $14,316 (rounded to the nearest dollar) to be received four years from today, assuming an earnings rate of 10%?

a.$45,382

b.$14,316

c.$11,338

d.$9,778

Answer 1

Answer:

1.The calculation of present value:

Present Value(PV) = FV x (1/1+r)n

At 6%, At 10% At 12%

PV = $1 x 0.943 PV = $1 x 0.909 PV = $1 x 0.893

= $0943 = $0.909 = $0.893

Accordingly, Option (1) is the correct answer.

2. The calculation of present value of an annuity:

Present Value of annuity(PVA) = FV x [{1-(1+r)-n} / r]

At 6%, At 10% At 12%

PVA = $1 x 0.943 PVA = $1 x 0.909 PVA = $1 x 0.893

= $0.943 = $0.909 = $0.893

Accordingly, Option (1) is the correct answer.

3. Calculation of present value:

Furure Value (FV)= $14,316

Present Value (PV) =??

Rate of Interest (r) = 10%

Period (n) = 4

Now,

Present Value(PV) = FV x (1/1+r)n

  = $14,316 x 0.6830

   = $9,778

Accordingly, Option (d) is the correct answer.