PRESENT AND FUTURE VALUES FOR DIFFERENT PERIODS Find the fol

PRESENT AND FUTURE VALUES FOR DIFFERENT PERIODS 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 a. An initial $500 compounded for 1 year at 896. b. An initial $500 compounded for 2 years at 8%. c. The present value of $500 due in 1 year at a discount rate of 8%. d. The present value of $500 due in 2 years at a discount rate of 8%.

Solution

Answer a.

Future Value = Present Value * (1 + Interest Rate)^Period
Future Value = $500 * (1 + 0.08)^1
Future Value = $500 * 1.08
Future Value = $540.00

Answer b.

Future Value = Present Value * (1 + Interest Rate)^Period
Future Value = $500 * (1 + 0.08)^2
Future Value = $500 * 1.1664
Future Value = $583.20

Answer c.

Present Value = Future Value / (1 + Interest Rate)^Period
Present Value = $500 / (1 + 0.08)^1
Present Value = $500 / 1.08
Present Value = $462.96

Answer d.

Present Value = Future Value / (1 + Interest Rate)^Period
Present Value = $500 / (1 + 0.08)^2
Present Value = $500 / 1.1664
Present Value = $428.67