Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually. Do not round intermediate calculations. Round your answers to the nearest cent.
An initial $600 compounded for 1 year at 3%.
$
An initial $600 compounded for 2 years at 3%.
$
The present value of $600 due in 1 year at a discount rate of 3%.
$
The present value of $600 due in 2 years at a discount rate of 3%.
$
a.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
A=$600*1.03
=$618
b.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
A=$600*(1.03)^2
=$636.54
c.Present value=cash flows*Present value of discounting factor(rate%,time period)
=600/1.03
=$582.52(Approx).
d.Present value=cash flows*Present value of discounting factor(rate%,time period)
=600/1.03^2
=$565.56(Approx).
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