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