Question

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 $600 compounded for 1 year at 9%. An initial $600 compounded for 2 years at 9%. The present value of $600 due in 1 year at a discount rate of 9%. The present value of $600 due in 2 years at a discount rate of 9%.

Answer 1

a.We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

A=600*(1.09)

=$654

b.We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

A=600*(1.09)^2

=$712.86

c.Present value=600*Present value of discounting factor(rate%,time period)

=600/1.09

=600*0.917431193

=$550.46(Approx)

d.Present value=600*Present value of discounting factor(rate%,time period)

=600/1.09^2

=600*0.841679993

=$505.01(Approx)