Question

In: Finance

Please fill in the blanks in the following table:          Present                Future        &n

Please fill in the blanks in the following table:

         Present                Future                   Interest                   Time to

         Value                   Value                      Rate                     Maturity

         $20,000                                                6%                      34 years

                                   $200,000                    7%                      12 years

         $55,000          $111,419.91                                             18 years

         $90,000          $207,408.40                 11%                           

Solutions

Expert Solution

a.

Future value formula = Presnet value*(1+interest rate)^time to matuirty

or FV = PV*(1+i)^n

=20000*(1+6%)^34

=145020.5055

Future value is $145020.51

b.

Present value formula = future value/(1+interest rate)^time to maturity

=200000/(1+7%)^12

=88802.39185

Present value is $88802.39

c

Interest rate formula = ((future value/present value)^(1/matuirty))-1

=((111419.91/55000)^(1/18))-1

=0.04000000086 or 4%

So interest rate is 4%

d.

There is no direct formula to calculate time to maturity. it will be calculated by trial and error method and interpolationf formula

Present value = Future value/(1+i)^n

90000 = 207408.4/(1+11%)^n

Assume n is 7 years

PV = 207408.4/(1+11%)^7

=99900.00035

Assume n is 9 years

PV =207408.4/(1+11%)^9

=81081.08136

interpolation formula = lower n +( (uper n - lower n)*(Uper value - actual value)/(uper value - lower value)

7 + ((9-7)*(99900.00035-90000)/(99900.00035-81081.08136)

=8.052132735 or 8 years

So time to matuirty is 8 years


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