Question

# Round answers to the nearest whole number. (a) The future value in two years of \$3,000...

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.

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

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

(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.

(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.

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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