Question

1. Calculate the present value of $50,000 to be received in 15 years assuming an annual interest rate of 6%.

2. Calculate the present value of $1,000,000 to be received in 20 years assuming an annual interest rate of 5%, compounded monthly.

3. Calculate the future value of $1,000 invested for 5 years assuming an annual interest rate of 20%.

4. Calculate the future value of $12,000 invested for 18 years assuming an annual interest rate of 12%, compounded monthly.

5. Calculate the present value of an ordinary annuity of $2,000 received annually for 5 years assuming a discount rate of 10%.

6. Calculate the present value of an annuity of $100,000 received annually that begins today and continues for 8 years, assuming a discount rate of 11.5%.

Answer 1

1]

present value = future value / (1 + (r/n))^n*t,

where r = annual interest rate. This is 6%.

n = number of compounding periods per year. This is 1, as the compounding is annual.

t = number of years. This is 15.

present value = future value / (1 + (r/n))^n*t,

present value = $50,000 / (1 + (6%/1))^1*15

present value = $20,863.25

2]

present value = future value / (1 + (r/n))^n*t,

where r = annual interest rate. This is 5%.

n = number of compounding periods per year. This is 12, as the compounding is monthly.

t = number of years. This is 20.

present value = future value / (1 + (r/n))^n*t,

present value = $1,000,000 / (1 + (5%/12))^12*20

present value = $368,644.53

3]

future value = present value * (1 + (r/n))^n*t,

where r = annual interest rate. This is 20%.

n = number of compounding periods per year. This is 1, as the compounding is annual.

t = number of years. This is 5.

future value = present value * (1 + (r/n))^n*t

future value = $1,000 * (1 + (20%/1))^1*5

future value = $2,488.32

4]

future value = present value * (1 + (r/n))^n*t,

where r = annual interest rate. This is 12%.

n = number of compounding periods per year. This is 12, as the compounding is monthly.

t = number of years. This is 18.

future value = present value * (1 + (r/n))^n*t

future value = $12,000 * (1 + (12%/12))^12*18

future value = $102,943.28