Question

3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually, what would be the present value?

. 4. Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years. She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary. Assume her investment earns a 7 percent interest rate, how much will she have saved for their trip if the interest is compounded in each of the following ways?

a. Annually

b. Quarterly

c. Monthly

Answer 1

3)Let us use pv formuale in excel to find this
=pv(rate,nper,pmt,fv,type)
rate=8%/2(since semi annual)
nper=4*2=8 periods
pmt=0
fv=2800
type=0 end of period
=pv(4%,8,0,2800,0)
=2045.93

4) We use fv formula in excel to find this:
=fv(rate,nper,pmt,pv,type)
a)Annualy
rate=7%
nper=10
pmt=4000
pv=0
type=0 end of period
=fv(7%,10,4000,0,0)=55265.79
b)quarterly
rate=7%/4
nper=10*4
pmt=4000
pv=0
type=0 end of period
=fv(7%/4,10*4,4000,0,0)=228936.54
c)monthly
rate=7%/12
nper=10*12
pmt=4000
pv=0
type=0 end of period
=fv(7%/12,10*12,4000,0,0)=692339.23