Question

Chris Eshden TIME VALUE oF MONEY CLASS PROBEMS If an individal put $4,000 in a avings account today, what amount of cash would be available wo years from today (10% interest)? $4,000 0.826 b $4,000n 0.826 2 $4,0000.826 d $4,0000.909 2 1. a. 2 What is the present value today of S6,000 to be received six years from today (10% inmeresty? a S6,0000.909x6- b. $6,000x 0.751 x 2 @ $6,000 x 0.621 x 0.909 $6,000x 0.683 x3 2 t00 Ca 3. What amount shoald be deposited in a bank today to grow to $3,000 three years from today (10% interest)? $3,000+0.751 b. $3,000x 0.909 x 3 (S3,000 x 0.909) +(53,000x 0.826) + ($3,000 x 0.751) $3,000 x 0.751 a. 2,12 4. What amount should an individual have in a bank account today before withdrawal if $5,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal-10% interest .) $5,000+($5,000 x 0,909) + (S5,000 x 0.826) + (S5,000 x 0.751) b. $5,000 0.683 x 4 c. (S5,000 x 0.909)+ (S5,000 x 0.826)+(S5,000 x 0.751) + ($5,000 x 0.683) d. S5,000 0.909 x 4 At the end of two years, what will be the balance in a savings account paying 6 % annually if $5,000 is deposited today? The future value of one at 6 % for one period is 1.06. a. $5,000 b. $5,300 c. $5,600 5. d. $5,618 Windsor Company will receive $100,000 in 7 years. If the appropriate interest rate is 10% , the present value of the $100,000 receipt is a. $51,000. b. $51,316 c. $151,000. d. $194,872. 6. fnd on Sheeley Company will receive $100,000 in a future year. If the future receipt is discounted at an interest rate of 10 % , its present value is $51,316. In how many years is the $100,000 received? a. 5 years b. б уеаrs с. 7 уears d. 8 years 7.

Answer 1

1) Option D= $4000*1/0.826446

2) Option C = $6000 * 1/(1.1)^6 =$6000*0.909091*0.620921

3) Option D= $3000/(1.1)^3 = $3000*0.751

4) Option A= Since the withdraw happens from day one he should have $5000 instantly in bank account and including the present value of amounts he withdraws in the subsequent years

=$5000 + $5000/0.9090 + $5000/0.82644 +5000/0.751

5)Option D $5618. ($5000*1.06*1.06) The amount is compounded twice since the period is two years

6) Option B = $51316 ($100000*1/((1.1)^7 )

7) Option C Present Value = Future value discounted by the present value factor

$51316=$100000*1/(1.1)^Years

Years=7 by solving the above equation. Or in the question 6 it is evident that $51316 took seven years to become $100,000