Question

You will receive $9,000 three years from now. The discount rate is 13 percent. Use Appendix B.

a. What is the value of your investment two years from now? (Round your answer to 2 decimal places.)

Value of investment           $

b. What is the value of your investment one year from now? (Round your answer to 2 decimal places.)

Value of investment           $

c. What is the value of your investment today? (Round your answer to 2 decimal places.)

Value of investment           $

Phil Goode will receive $106,000 in 18 years. Sounds great! However if current interest rates suggested for discounting are 19 percent, what is the present worth of his future “pot of gold”? Use Appendix B. (Round "PV Factor" to 3 decimal places. Round the final answer to the nearest whole dollar.)

Present value           $

Cousin Berta invested $170,000 eleven years ago at 12 percent, compounded quarterly. Use Appendix A.

a. How much has she accumulated? (Round "FV Factor" to 3 decimal places. Round the final answer to the nearest whole dollar.)

Future value           $

b. What is her effective annual interest rate (rate of return)? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Effective annual interest rate             %

Answer 1

a) Present value two years from now.

= 9000/(1+0.13)2

= $ 7048

b) Present value one year from now,

=9000/(1+.13)

= $ 7965

c) The present value now would be $ 9000/(1+.13)3=$ 6238

d) Present value = 106000/(1+0.19)18

=$ 4629

e) Future value factor from the table would be 89.0484 for 12% compounded quarterly for 11 years.

So the future value = $ 170,000*89.0484= $ 15138228

d) Effective interest rate = ( 1+ r/m)n-1 Here r = normal rate of interest, m = Number of compounding periods in a year and n=Number of compounding period the rate is required for

= (1+0.12/4)44-1

=(1+0.3)44-1

=3.67-1

=2.67%