Question

- When payments are made/received in periods less than one year
(e.g., monthly), the present value and future value
formulas:
- are not adjusted
- are adjusted by increasing the number of periods (“n”) to reflect more payments
- are adjusted by decreasing the rate (“r”)
- are adjusted by increasing the number of periods (“n”) and decreasing the rate (“r”) per period

Answer #1

When payments are made/received in periods less than one year
(e.g., monthly), the present value and future value formulas
**are adjusted by increasing the number of periods (“n”) and
decreasing the rate (“r”) per period .** This is because the
time period will be in months which will be higher than the count
of number 1 as year. Also, we need to reduce the r from annual
discount factor to monthly discount factor.

**If your query has been solved, please like the
answer. Thanks!**

What is the present value of $7,560 due 8 periods hence,
discounted at 6%?
What is the future value of 17 periodic payments of $7,560 each
made at the end of each period and compounded at 10%?
What is the present value of $7,560 to be received at the end of
each of 17 periods, discounted at 5% compound interest?

What is the present value of 10 $10,000 payments each of which
will be received at the
beginning of each period over 10
periods, discounted at 6% per a compounding period.

What is the future value of 20 periodic payments of $4,720 each
made at the beginning of each period and compounded at 8%? What is
the present value of $3,440 to be received at the beginning of each
of 28 periods, discounted at 5% compound interest? What is the
future value of 16 deposits of $2,920 each made at the beginning of
each period and compounded at 10%? (Future value as of the end of
the 16th period.) What is...

1. What is the future value of 17 periodic payments of $8,690
each made at the end of each period and compounded at 10%?
2. What is the present value of $8,690 to be received at the end
of each of 18 periods, discounted at 5% compound interest?

Future Value
Interest Rate
Number of Periods
Present Value
$900.00
5%
5
?
$80,000.00
6%
30
?
$350,000.00
10%
20
?
$26,981.75
16%
15
?
Present values. Fill in the present values for the following
table, (popup above), using one of the three methods below:
a. Use the present value formula,
PV=FV×1(1+r)n.
b. Use the TVM keys from a calculator.
c. Use the TVM function in a spreadsheet.
Future Value
Interest Rate
Number of Periods
Present Value
$ 900.00
5%
...

When calculating the present value of an annuity, we assume
that
a) the number of compundings depends on the annual interest
rate
b. the number of compoundings per year is equal to the number of
payments per year
c. the number of compoundings each year is independent of the
payments per year
d. the number of compundings depends on the size of the
payment.
the difference between the present value and future value of an
amount is:
a. an annuity...

An ordinary annuity has a present value of $1,000,000. The
annuity has monthly payments.
The interest rate on the annuity is 10% APR. Which of the
following represents the present value
if this were an annuity due?
a. $1,000,000 x 1.01
b. $1,000,000 / 1.10
c. $1,000,000 / 1.008333333
d. $1,000,000 x 1.008333333
e. $1,000,000 x 1.10
If you double the initial investment, then the future value will
be more than doubled for a multi-period investment, everything else
equat (Hint:...

The present value of a stream of cash flows you expect to
received will always increase when:
a.
the interest rate is greater than zero and the number of
compounding periods decrease.
b.
the interest rate is zero and the number of compounding periods
increase.
c.
the interest rate is greater than zero and the number of
compounding periods increase.
d.
the interest rate is zero and the number of compounding periods
decrease.

Lease term=3
monthly rental payments made in advance
residual payment of 40% of the initial value of the car
P: initial value of the car = $50,000
n:the term in months= 36
i: interest rate on the lease per month=0.75%
X: residual payment= 0.40×$50,000 = $20,000.
R: monthly rentals
Show that this final payment received by the leasing company can
be rewritten as X-Max(X-S,0) which can be thought of as the
residual payment less the payoff on a put option

1(a). (TRUE or FALSE?) Other things being equal, the less
frequently interest is compounded, the more interest the investment
will earn.
1(b). (TRUE or FALSE?) The higher the number of periods, the
lower the future value.
1(c). (TRUE or FALSE?) Annuities due is the payments are
made/received at the beginning of the period.

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