Question

Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.) Do not round intermediate calculations. Round your answers to the nearest cent.

1. An initial $700 compounded for 1 year at 4%.

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2. An initial $700 compounded for 2 years at 4%.

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3. The present value of $700 due in 1 year at a discount rate of 4%.

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4. The present value of $700 due in 2 years at a discount rate of 4%.

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Answer 1

a.Information provided:

Present value= $700

Time= 1 year

Interest rate= 4%

The question is solved by computing the future value.

Enter the below to calculate the future value:

PV= 700

N= 1

I/Y= 4

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

The value obtained is 728.

Therefore, the value in 1 year is $728.

b.Information provided:

Present value= $700

Time= 2 years

Interest rate= 4%

The question is solved by computing the future value.

Enter the below to calculate the future value:

PV= 700

N= 2

I/Y= 4

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

The value obtained is 757.12.

Therefore, the value in 2 year is $757.12.

c.Information provided:

Future value= $700

Time= 1 year

Interest rate= 4%

The question is solved by computing the present value.

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

FV= 700

N= 1

I/Y= 4

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

The value obtained is 673.08.

Therefore, the present value is $673.08.

d.Information provided:

Future value= $700

Time= 2 years

Interest rate= 4%

The question is solved by computing the present value.

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

FV= 700

N= 2

I/Y= 4

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

The value obtained is 647.19.

Therefore, the present value is $647.19.

In case of any query, kindly comment on the solution.