Question

A.)

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.

An initial $200 compounded for 1 year at 4%.

An initial $200 compounded for 2 years at 4%.

The present value of $200 due in 1 year at a discount rate of 4%.

The present value of $200 due in 2 years at a discount rate of 4%.

B.)

An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $400 at the end of Year 5, and $600 at the end of Year 6.

If other investments of equal risk earn 4% annually, what is its present value? Round your answer to the nearest cent.

If other investments of equal risk earn 4% annually, what is its future value? Round your answer to the nearest cent.

Answer 1

A)
1)	Future Value of 1		=	(1+i)^n		Where,
						i	Interest rate
						n	Life in years
	So, future Value of :
	An initial $200 compounded for 1 year at 4%
	=	200*(1+0.04)^1
	=	$ 208.00
	An initial $200 compounded for 2 years at 4%
	=	200*(1+0.04)^2
	=	$ 216.32
2)	Present Value of 1		=	(1+i)^-n		Where,
						i	Interest rate
						n	Life in years
	So,Present Value of:
	The present value of $200 due in 1 year at a discount rate of 4%
	=	200*(1+0.04)^-1
	=	$ 192.31
	The present value of $200 due in 2 year at a discount rate of 4%
	=	200*(1+0.04)^-2
	=	$ 184.91
B)
1)
	Present Value of different annual cash flow is calculated as follows:
	Year	Annual cash flow		Discount factor		Present Value
	a	b		c=1.04^-a		d=b*c
	1	$        100		0.96154		$       96.15
	2	100		0.92456		$       92.46
	3	100		0.88900		$       88.90
	4	200		0.85480		$     170.96
	5	400		0.82193		$     328.77
	6	600		0.79031		$     474.19
		Total				$ 1,251.43
2)	Future Value of different annual cash flow is calculated as follows:
	Year	Annual cash flow		Discount factor		Future Value
	a	b		c=1.04^(6-a)		d=b*c
	1	$        100		1.21665		$     121.67
	2	100		1.16986		$     116.99
	3	100		1.12486		$     112.49
	4	200		1.08160		$     216.32
	5	400		1.04000		$     416.00
	6	600		1.00000		$     600.00
		Total				$ 1,583.46