Question

Find the following values. Compounding/discounting occurs annually. Do not round intermediate calculations. Round your answers to the nearest cent. a. An initial $300 compounded for 10 years at 9%. b. An initial $300 compounded for 10 years at 18%. c. The present value of $300 due in 10 years at 9%. d. The present value of $1,085 due in 10 years at 18% and 9%. Present value at 18%:$ Present value at 9%:$ e. Define present value. I. The present value is the value today of a sum of money to be received in the future and in general is less than the future value. II. The present value is the value today of a sum of money to be received in the future and in general is greater than the future value. III. The present value is the value today of a sum of money to be received in the future and in general is equal to the future value. IV. The present value is the value in the future of a sum of money to be received today and in general is less than the future value. V. The present value is the value in the future of a sum of money to be received today and in general is greater than the future value. -Select- How are present values affected by interest rates? -Select-

Answer 1

A) Using financial calculator to calculate the future value

Inputs : N= 10

I/y = 9%

Pmt = 0

Pv = -300

Fv = compute

We get, future value as $ 710.21

Therefore value is $710.21

B) Using financial calculator to calculate the value

Inputs: N= 10

I/y= 18%

Pmt = 0

Pv = -300

Fv = compute

We get, future value as $ 1,570.15

Therefore value is $1,570.15

C) Using financial calculator to calculate the present value

Inputs: N = 10

I/y = 9%

Pmt = 0

Fv = 300

Pv = compute

We get, present value as $ 126.72

Therefore the present value is $126.72

D) Using financial calculator to calculate the present value

Inputs: N= 10

I/y = 9%

Pmt = 0

Fv = 1,085

Pv = compute

We get, present value at 9% as $ 458.32

Inputs: N = 10

I/y = 18%

Fv = 1,085

Pmt = 0

Pv = compute

We get, present value at 18% as $ 207.31

E) I) The present value is the value today of a sum of money to be received in the future and in general less than the future value.

When the interest rates increases the present value decreases and vice versa. This means they have an inverse relationship .