Homework SourseCalculate the present value of 4000 received five years from
Calculate the present value of $4,000 received five years from today if your investments pay (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
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Solution
1.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
4000=P(1.06)^5
P=$4000/1.06^5
=$4000*0.747258172
=$2989.03(Approx)
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.
4000=P(1.08)^5
P=$4000/1.08^5
=$4000*0.680583197
=$2722.33(Approx)
c.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
4000=P(1.1)^5
P=4000/1.1^5
=$4000*0.620921323
=$2483.69(Approx)
4.
We use the formula:
A=P(1+r/200)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.
4000=P(1+10/200)^(2*5)
4000=P*1.628894627
P=4000/1.628894627
=$2455.65(Approx)
5.
We use the formula:
A=P(1+r/400)^4n
where
A=future value
P=present value
r=rate of interest
n=time period.
4000=P(1+10/400)^(4*5)
4000=P*1.63861644
P=4000/1.63861644
=$2441.08(Approx)
| Case | Present value |
| a.6 percent compounded annually | $2989.03(Approx) |
| b.8 percent compounded annually | $2722.33(Approx) |
| c.10 percent compounded annually | $2483.69(Approx) |
| d.10 percent compounded semiannually | $2455.65(Approx) |
| e.10 percent compounded quarterly | $2441.08(Approx) |
