Question

Use future value and present value calculations to determine the following (a) The future value of a $400 savings deposit after eight years at an annual interest rate of 3 percent. Use Table 1. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Future value (b) The future value of saving $1,800 a year for five years at an annual interest rate of 4 percent. Use Table 2. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Future value (c) The present value of a $6,000 savings account that will earn 3 percent interest for four years. Use Table 3. (Round time value factor to 3 decimal places and final answer to the nearest whole number.) Present value

Answer 1

Answer a.

Amount deposited = $400
Interest rate = 3%
Period = 8 years

Future value = $400 * FV of $1 (3%, 8)
Future value = $400 * 1.267
Future value = $506.80

Answer b.

Annual saving = $1,800
Interest rate = 4%
Period = 5 years

Future value = $1,800 * FVA of $1 (4%, 5)
Future value = $1,800 * 5.416
Future value = $9,748.80

Answer c.

Future value = $6,000
Interest rate = 3%
Period = 4 years

Present value = $6,000 * PV of $1 (3%, 4)
Present value = $6,000 * 0.888
Present value = $5,328