Time Value of Money Basics Using Table 24A1 and Table 24A2 o

Time Value of Money: Basics
Using Table 24A.1 and Table 24A.2 of this module, determine the answers to each of the following independent situations. (Round answers to the nearest whole number.)

(a) The future value in three years of $1,000 deposited today in a savings account with interest compounded annually at 9 percent.
$ Answer

(b) The present value of $7,000 to be received in two years, discounted at 10 percent.
$ Answer

(c) The present value of an annuity of $8,000 per year for six years discounted at 12 percent.
$ Answer

(d) An initial investment of $18,556 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 14 percent.
$ Answer

(e) A proposed investment will provide cash flows of $30,000, $7,000, and $5,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 16 percent, determine the present value of these cash flows.
Year 1 $ Answer
Year 2 $ Answer
Year 3 $ Answer

(f) Find the present value of an investment that will pay $5,000 at the end of Years 10, 11, and 12. Use a discount rate of 10 percent.
$ Answer

Solution

a Future Value = Present value ( 1+r)n r = Rate of interest n = time periods FV = 1000(1+.09)3 1000*1.295 $1,295 The Future Value will be $ 1295 b Present value = FV/(1+r)n 7000/(1+.1)2 7000*.826 The Present Value is $ 5785 c PV = Cash Flow( PVAF, Life. Rate) From the annuity table PV = 8000*4.11 The Present Value is $ 32891 e Present value Year 1 30000/(1+.16)1 30000*.862 $22,295 Year 2 7000/(1+.16)2 7000*.743 $3,866 Year 3 5000/(1+.16)3 5000*.641 $2,052