Question

# Find the present value of \$700 due in the future under each of the following conditions....

Find the present value of \$700 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent.

A) 10% nominal rate, semiannual compounding, discounted back 5 years

B) 10% nominal rate, quarterly compounding, discounted back 5 years

C) 10% nominal rate, monthly compounding, discounted back 1 year

Future Value = \$700
Present Value = ??
Rate = 10% p.a. or 5.00% semi-annually
Time = 5 years or 10 semi-annual period

Future Value = Present Value * (1+ r)^n
\$700 = Present Value * (1 + 0.05)^10
\$700 = Present Value * 1.05^10
\$700 = Present Value * 1.6289
Present Value = \$429.74

Future Value = \$700
Present Value = ??
Rate = 10% p.a. or 2.50% quarterly
Time = 5 years or 20 Quarters

Future Value = Present Value * (1+ r)^n
\$700 = Present Value * (1 + 0.025)^20
\$700 = Present Value * 1.025^20
\$700 = Present Value * 1.6386
Present Value = \$427.19

Future Value = \$700
Present Value = ??
Rate = 10% p.a. or 0.83% monthly
Time = 1 years or 12 months

Future Value = Present Value * (1+ r)^n
\$700 = Present Value * (1 + 0.00833)^12
\$700 = Present Value * 1.00833^12
\$700 = Present Value * 1.1047
Present Value = \$633.66

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