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.

1. An initial $600 compounded for 1 year at 8%.

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2. An initial $600 compounded for 2 years at 8%.

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3. The present value of $600 due in 1 year at a discount rate of 8%.

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4. The present value of $600 due in 2 years at a discount rate of 8%.

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Answer 1

a.Information provided:

Present value= $600

Time= 1 year

Interest rate= 8%

The question is solved by calculating the future value.

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

PV= -600

N= 1

I/Y= 8

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

The value obtained is 648.

Therefore, the future value is $648.

b.Information provided:

Present value= $600

Time= 2 years

Interest rate= 8%

The question is solved by calculating the future value.

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

PV= -600

N= 2

I/Y= 8

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

The value obtained is 699.84.

Therefore, the future value is $699.84.

c.Information provided:

Future value= $600

Time= 1 year

Discount rate= 8%

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

FV= 600

N= 1

I/Y= 8

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

The value obtained is 555.56.

Therefore, the present value is $555.56.

d.Information provided:

Future value= $600

Time= 2 years

Discount rate= 8%

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

FV= 600

N= 2

I/Y= 8

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

The value obtained is 514.40.

Therefore, the present value is $514.40.