Question

Calculate the present value of $7,000 received four years from today if your investments pay (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

		Present Value
a.	6 percent compounded annually
b.	8 percent compounded annually
c.	10 percent compounded annually
d.	10 percent compounded semiannually
e.	10 percent compounded quarterly

Answer 1

Case A:

Future Value = $7,000
Annual Interest Rate = 6.00%
Period = 4 years

Present Value = Future Value / (1 + Annual Interest Rate)^Period
Present Value = $7,000 / 1.06^4
Present Value = $5,544.66

Case B:

Future Value = $7,000
Annual Interest Rate = 8.00%
Period = 4 years

Present Value = Future Value / (1 + Annual Interest Rate)^Period
Present Value = $7,000 / 1.08^4
Present Value = $5,145.21

Case C:

Future Value = $7,000
Annual Interest Rate = 10.00%
Period = 4 years

Present Value = Future Value / (1 + Annual Interest Rate)^Period
Present Value = $7,000 / 1.10^4
Present Value = $4,781.09

Case D:

Future Value = $7,000
Annual Interest Rate = 10.00%
Semiannual Interest Rate = 5.00%
Semiannual Period = 8 (4 years)

Present Value = Future Value / (1 + Semiannual Interest Rate)^Semiannual Period
Present Value = $7,000 / 1.05^8
Present Value = $4,737.88

Case E:

Future Value = $7,000
Annual Interest Rate = 10.00%
Quarterly Interest Rate = 2.50%
Period = 4 years or 16 quarters

Present Value = Future Value / (1 + Quarterly Interest Rate)^Period in quartes
Present Value = $7,000 / 1.025^16
Present Value = $4,715.37