a How much would you have to deposit today if you wanted to

a. How much would you have to deposit today if you wanted to have $40,000 in five years? Annual interest rate is 8%. (Pyof$1. Evof $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to the nearest whole dollar.) Present value b. Assume that you are saving up for a trip around the world when you graduate in three years. If you can earn 7% on your investments, how much would you have to deposit today to have $10,000 when you graduate? (Round your answer to 2 decimal places.) Present value c-1. Calculate the future value of an investment of $486 for eleven years earning an interest of 8%. (Round your answer to 2 decimal places) Future value

Solution

You want an investment to have a value of $40,000 in 5 years. The account will earn 8% per year. You want to know the value of your investment now to achieve this or, the present value of your investment account.

Investment Value in 5 years FV = $40,000

Interest Rate R = 8%, r = 0.0625

Number of Periods (years) t = 5

Compounding per Period (per year) m = 1

PV = FV [1/(1 + I)t]

PV=$40,000[1/ (1+.08)] ^5    =$27,223.33

Year       Interest                                Future Value

Present Value                  $27,223.33

1              $2,177.87             $29,401.19

2              $2,352.10             $31,753.29

3              $2,540.26             $34,293.55

4              $2,743.48             $37,037.04

5              $2,962.96             $40,000.00

Totals    $12,776.67           $40,000.00

2.

PV = FV [1/(1 + I)t]

PV=$10000[1/(1+.07)]^3

Year                       Interest                                Future Value

Present Value                                  $8,162.98

1                              $571.41 $8,734.39

2                              $611.41 $9,345.79

3                              $654.21 $10,000.00

Totals                    $1,837.02             $10,000.00

3.

FV=PV(1+i)^n

FV interest factor= 2.33164

=486(1+.08)^11= $1,133.18