Question

Find the following values. Compounding/discounting occurs annually. Do not round intermediate calculations. Round your answers to the nearest cent.

a. An initial $600 compounded for 10 years at 3%.

b.An initial $600 compounded for 10 years at 6%.

c. The present value of $600 due in 10 years at 3%.

d. The present value of $1,125 due in 10 years at 6% and 3%.

Answer 1

a.Information provided:

Present value= $600

Time= 10 years

Interest rate= 3%

The question is solved by computing the future value.

Enter the below to calculate the future value:

PV= -600

N= 10

I/Y= 3

Press the CPT key and FV to calculate the future value.

The value obtained is 806.35.

Therefore, the future value is $806.35.

b.Information provided:

Present value= $600

Time= 10 years

Interest rate= 6%

The question is solved by computing the future value.

Enter the below to calculate the future value:

PV= -600

N= 10

I/Y= 6

Press the CPT key and FV to calculate the future value.

The value obtained is 1,074.51.

Therefore, the future value is $1,074.51.

c.Information provided:

Future value= $600

Time= 10 years

Discount rate= 3%

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 600

N= 10

I/Y= 3

Press the CPT key and PV to calculate the present value.

The value obtained is 446.46.

Therefore, the present value is $446.46.

d.i.Information provided:

Future value= $1,125

Time= 10 years

Discount rate= 6%

Enter the below in a financial calculator to compute the present value:

FV= 1,125

N= 10

I/Y= 6

Press the CPT key and PV to calculate the present value.

The value obtained is 628.19.

Therefore, the present value is $628.19.

d.ii.Information provided:

Future value= $1,125

Time= 10 years

Discount rate= 3%

Enter the below in a financial calculator to compute the present value:

FV= 1,125

N= 10

I/Y= 3

Press the CPT key and PV to calculate the present value.

The value obtained is 837.11.

Therefore, the present value is $837.11.