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 3%.

   $  

2. An initial $600 compounded for 2 years at 3%.

   $  

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

   $  

4. The present value of $600 due in 2 years at a discount rate of 3%.

   $  

Answer 1

Future Value:

Future Value is Value of current asset at future date grown at given int rate or growth rate.

FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods

Present Value:

Present value is current value of Future cash flows discounted at specified discount Rate.

PV = FV / (1+r)^n
Where r is Int rate per period
n - No. of periods

Part A:

Particulars	Amount
Present Value	$                600.00
Int Rate	3.0000%
Periods	1

Future Value = Present Value * ( 1 + r )^n
= $ 600 ( 1 + 0.03) ^ 1
= $ 600 ( 1.03 ^ 1)
= $ 600 * 1.03
= $ 618

Part B:

Particulars	Amount
Present Value	$                600.00
Int Rate	3.0000%
Periods	2

Future Value = Present Value * ( 1 + r )^n
= $ 600 ( 1 + 0.03) ^ 2
= $ 600 ( 1.03 ^ 2)
= $ 600 * 1.0609
= $ 636.54

Part C:

Particulars	Amount
Future Value	$                 600.00
Int Rate	3.0000%
Periods	1

Present Value = Future Value / ( 1 + r )^n
= $ 600 / ( 1 + 0.03 ) ^ 1
= $ 600 / ( 1.03 ) ^ 1
= $ 600 / 1.03
= $ 582.52

Part D:

Particulars	Amount
Future Value	$                 600.00
Int Rate	3.0000%
Periods	2

Present Value = Future Value / ( 1 + r )^n
= $ 600 / ( 1 + 0.03 ) ^ 2
= $ 600 / ( 1.03 ) ^ 2
= $ 600 / 1.0609
= $ 565.56