Question

Mike Derr Company expects to earn 8% per year on an investment that will pay $606,000 eight years from now. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

1a. Compute the present value of this investment.

future value	?	table factor	=	present value
$606,000	x/+-		=

On January 1, Mike Derr company agrees to pay $16,000 in five years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

1b.

future value	?	table factor	=	amount borrowed
	x/+-		=

Mike Derr expects to invest $18,000 at 9% and, at the end of a certain period, receive $65,565. How many years will it be before Mike receives the payment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

1c.

future value		present value		table factor	years
	x/+-		=

Answer 1

1a) Futurevalue = present value x PV factor

Future value = 606000

Time period = 8 years

Interest = 8%

PV factor will be of 8% = 1/ (1+r)n

Investment = present value of 606000 @ 8% with time 8 years

= 606000 x 0.5403

Pv = 327421.8 or 327422

This means 327422 invested today at 8% interest compunded annually for 8 year will become 606000

We can verify this by 327422 (1+08)8   = 606000

1b) In this derr has to pay 16000 after 5 years so thats is his future value so its present value will be the present amount x PV factor of 8% at 5th year

Pv factor 5th year = 1/(1+.08)5   = 0.6806

so Amount borrowed = 16000 x0.6806

=10889.6 or 10890

This means 10890 borowwed today will become 16000 in 5 years with 8% interest

1c) using above formula

65565 x PV factor 9% = 18000

PV factor @9% = 18000/65565 = 0.274536

Here we will see the table in reverse order that is we will se when the 9% interest have figure close to 0.2745367 that willl be our time period

Its in 15th year so time period is 15 years