Question

1) Calculate the present value of $5,000 received five years from today if your investments pay

1. 6 percent compounded annually

2. 8 percent compounded annually

3. 10 percent compounded annually

4. 10 percent compounded semiannually

5. 10 percent compounded quarterly
   

What do your answers to these questions tell you about the relation between present values and interest rates and between present values and the number of compounding periods per year?

Answer 1

	Present value
6 percent compounded annually	$    3,736.29	=5000/(1+6%)^5
8 percent compounded annually	$    3,402.92	=5000/(1+8%)^5
10 percent compounded annually	$    3,104.61	=5000/(1+10%)^5
10 percent compounded semiannually	$    3,069.57	=5000/(1+5%)^10
10 percent compounded quarterly	$    3,051.35	=5000/(1+2.5%)^20
Present value and interest rates has inverse relationship.
Present value and Number of compoundings has inverse relationship.