A. Compound Interest Formula:FV = P (1 + r) nFuture Value = FV, P = Principal, r = interest rate and n = number of years.
= $500(1 + 0.06) 10a) An initial $500 compounded for 10 years at 6 percent.
A = $ 895b) An initial $500 compounded for 10 years at 12 percent.
500(1 + 0.12) 10B = $1553Present Value Calculation:PV = present Value, Principal = $ 500, r = interest rate and n = number of yearsFormula:PV = FV/(1 + r) nThe present value of $500 due in 10 years at a 6 percent discount rate.
PV = $ 500 / (1 + 0.06) 10c) The present value of $500 due in 10 years at a 6 percent discount rate.
C = $ 279.20d) The present value of $1,552.90 due in 10 years at a 12 percent discount rate and at a 6 percent rate.
At 6 % = $ 867.13At
12 % = $ 499.99Definition of Present valueThe free dictionary defines Present Value as, ÃÂÃÂThe amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 6%, the present value of $500 to be received in ten year is $ 500 /(1 + 0.06) 10 = $ 279.20 For $ 1552.90 due in 10 years at a 12 percent discount rate and at a 6 percent rate. The present value is $ 867.13 % and $ 499.99 respectively.
B Future Value of an Annuity:The Future Value of an Ordinary Annuity (FVoa) is the value that a stream of expected or promised future payments will grow to after a...