Question

You are scheduled to be paid $10,000 in four years. What amount today is equivalent to the $10,000 to be received in four years assuming interest is compounded annually at six percent? Use Excel or a financial calculator for computation. Round answer to the nearest dollar.

What amount will be accumulated in four years if $10,000 is invested every six months beginning in six months and ending four years from today? Interest will accumulate at an annual rate of ten percent compounded semiannually. Use Excel or a financial calculator for computation. Round answer to the nearest dollar.

You are scheduled to receive $10,000 every six months for eight periods beginning in six months. What amount in four years is equivalent to the future series of payments assuming interest compounds at the annual rate of eight percent compounded semiannually? Use Excel or a financial calculator for computation. Round answer to the nearest dollar.

Answer 1

a) Amount today = Future value * PVF6%,4

                    = 10000 * .79209

                    = 7920.9   [rounded to 7921]

**Find present value factor using the formula 1/(1+i)^n where i= 6% and n = 4

b)Future value /Amount accumulated in 4 years =FVA5%,8 * Annual deposit

                                       = 9.54911 * 10000

                                       = 95491.1 (rounded to 95491 )

WORKING:

Semiannual rate = 10 *6/12 = 5%                [2semiannual period in a year comprising of 6 months each]

Number of semiannual months = 4 * 2 =8

Find future value annuity factor using financial calculator : PMT =1 ,i =5% and n = 8

c)

Future value /Amount accumulated in 4 years =FVA4%,8 * Annual deposit

                                       = 9.21423 * 10000

                                       = 92142.3 (rounded to 92142 )

WORKING:

Semiannual rate = 8 *6/12 = 4%                [2semiannual period in a year comprising of 6 months each]

Number of semiannual months =8

Find future value annuity factor using financial calculator : PMT =1 ,i =4% and n = 8