Question

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.

Year 1 | $Answer |

Year 2 | $Answer |

Year 3 | $Answer |

(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

Answer #1

**Solution a:**

Future value = $3,000 * (1+0.06)^2 = $3,371

**Solution b:**

Present value = $12,000 * PV factor at 12% for 4th period = $12,000 * 0.63552 = $7,626

**Solution c:**

Present value = $3,000 * Cumulative PV Factor at 14% for 5 periods

= $3,000 * 3.43308 = $10,299

**Solution d:**

Amount of each payment = $48,015 / Cumulative PV factor at 12% for 8 periods

= $48,015 / 4.96764

= $9,666

**Solution e:**

Computation of Present value of cash flows |
|||

Years |
Cash Flow |
PV Factor |
Present Value |

1 | $30,000.00 | 0.83333 | $25,000 |

2 | $12,000.00 | 0.69444 | $8,333 |

3 | $9,000.00 | 0.57870 | $5,208 |

Total |
$38,542 |

**Solution f:**

Present value of investment = $7,500 * Cumulative PV factor at 14% for 10 to 12 periods

= $7,500 * 0.71392 = $5,354

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