Question

1. What is the value today of $500 received in 3 years if the going rate of interest is 10% per year?
2. An individual has $3,000 today. What will that be worth in 7 years if the going rate of interest is 4% per year?
3. What is the present value of $250 received at the end of each year for the next 8 years if the interest rate is 4.5% per year? I need a break down of how to solve in words and numerals I get confused when I see everything mixed in a chart and words thrown everywhere. I am not good at this, I am a new learner, I need lay terms with a paragraph explaining how I came to the conclusion. Sorry

Answer 1

1.
In this question, we have to calculate the Present Value (PV).
The formula for calculating the Present value is give below:
Present value (PV) = FV / (1 + r) ^n
Here,
FV = Future value = $500
r = Rate =10%
n = Number of periods = 3 years
Present value = $500 / (1 + 0.10) ^3
= $500 / 1.331
= $375.66

2.
In this question, we have to calculate the Future Value (FV).
The formula for calculating the Future value is give below:
FV = PV * ( 1 + r) ^n
Here,
FV = Future Value
PV = Present Value = $3,000
r = Interest rate = 4%
n = Number of periods = 7 years

FV = $3,000 * (1+0.04) ^7
= $3,000 * 1.3159
= $3,947.80

3.
In this question, we have to calculate the Present Value (PV).
The formula for calculating the Present value is give below:

PV =P{(1-(1+I)^-n)/i}

=$250{(1-(1+.045)^-8)/.045}

=$250{(1-.7032)/.045}

=$250(6.5959)

=$1,648.98