Question

1. What is the discount rate assuming the present value of $840 at the end of 1-year is $765?

2. What is the Future value of $3,500 deposited for 12 years at 5% compounded annually?

3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually, what would be the present value?

4. Determine the future value of $6,000 after 5 years if the appropriate interest rate is 8%, compounded monthly.

Answer 1

Question 1

Present value = Future value / (1+ rate per period)^ no. of periods

765 = 840 / (1+r)^1

1+r= 840/765

= 1.09803921569

r =1.09803921569-1

= 0.09803921569

r = 9.80%

Question 2

Future value = Present value * (1+ rate per period)^ no. of periods

= 3500 * (1+.05)^12

= 3500*1.79585632602

= 6285.50

Question 3

Present value = Future value / (1+ rate per period)^ no. of periods

= 2800/(1+(.08/2))^(4*2)

= 2800/(1+.04)^8

= 2800/1.36856905041

= 2045.93

​​​​​​​Question 4

Future value = Present value * (1+ rate per period)^ no. of periods

= 6000*(1+(.08/12))^(5*12)

= 6000*(1+0.00666666666)^60

= 6000*1.48984570771

= 8939.07