Question

Present and Future Values of Single Cash Flows for Different Interest Rates

Use both the TVM equations and a financial calculator to find the following values. Round your answers to the nearest cent. (Hint: Using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.)

An initial $300 compounded for 10 years at 5.4 percent.
$   

An initial $300 compounded for 10 years at 10.8 percent.
$   

The present value of $300 due in 10 years at a 5.4 percent discount rate.
$   

The present value of $300 due in 10 years at a 10.8 percent discount rate.
$  

Answer 1

Using the TVM equations:

1. Here PV = $300, i = 5.4% and n = 10 years. Thus FV = PV*(1+i)^n = 300*(1+5.4%)^10 = $507.61

2. Here PV = $300, i = 10.8% and n = 10 years. Thus FV = PV*(1+i)^n = 300*(1+10.8%)^10 = $836.60

3. Here FV = $300, i = 5.4% and n = 10 years. Thus PV = FV/(1+i)^n = 300/(1+5.4%)^10 = $177.30

4. Here FV = $300, i = 10.8% and n = 10 years. Thus PV = FV/(1+i)^n = 300/(1+10.8%)^10 = $107.58

Using the financial calculator:

1. Here I/Y = 5.4%, N = 10, PMT = 0, and PV = 300. After entering the values press "COMP" and then press FV. The calculator will give an answer of $507.6067

2. Here I/Y = 10.8%, N = 10, PMT = 0, and PV = 300. After entering the values press "COMP" and then press FV. The calculator will give an answer of $833.6019

3. Here I/Y = 5.4%, N = 10, PMT = 0, and FV = 300. After entering the values press "COMP" and then press PV. The calculator will give an answer of $177.3026

4. Here I/Y = 10.8%, N = 10, PMT = 0, and FV = 300. After entering the values press "COMP" and then press PV. The calculator will give an answer of $107.5780