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

(a) Initial Amount = $ 500, Time = 1 year and Compounding Rate = 8 % per annum compounded annually

Final Value = 500 x 1.08 = $ 540

(b) Initial Amount = $ 500, Time = 2 years and Compounding Rate = 8 % per annum compounded annually

Final Value = 500 x 1.08^(2) = $ 583.2

(c) Final Value = $ 500, Discount Rate = 8 % per annum, Tenure = 1 year

Present Value = 500 / 1.08 = $ 462.96 or $ 463 approximately.

(d) Final Value = $ 500, Discount Rate = 8 % per annum, Tenure = 2 years

Present Value = 500 / (1.08)^(2) = $ 428.67 or $ 429 approximately