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. (Hint: If you are 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.) Do not round intermediate calculations. Round your answers to the nearest cent.

1. An initial $200 compounded for 10 years at 5%.

   $ __________

2. An initial $200 compounded for 10 years at 10%.

   $ _________-

3. The present value of $200 due in 10 years at a 5% discount rate.

   $ ___________

4. The present value of $200 due in 10 years at a 10% discount rate.

   $ _______

Answer 1

a.Information provided:

Present value= $200

Time= 10 years

Interest rate= 5%

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

PV= -200

N= 10

I/Y= 5

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

The value obtained is 518.75.

Therefore, the future value is $518.75.

b.Information provided:

Present value= $200

Time= 10 years

Interest rate= 10%

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

PV= -200

N= 10

I/Y= 10

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

The value obtained is 325.78.

Therefore, the future value is $325.78.

c.Information provided:

Future value= $200

Time= 10 years

Interest rate= 5%

The question is solved by computing the present value.

Enter the below to calculate the present value:

FV= 200

N= 10

I/Y= 5

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

The value obtained is 122.78.

Therefore, the present value is $122.78.

d.Information provided:

Future value= $200

Time= 10 years

Interest rate= 10%

The question is solved by computing the present value.

Enter the below to calculate the present value:

FV= 200

N= 10

I/Y= 10

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

The value obtained is 77.11.

Therefore, the present value is $77.11.

In case of any query, kindly comment on the solution.