Question

Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually. Do not round intermediate calculations. Round your answers to the nearest cent. a. An initial $300 compounded for 1 year at 7%. b. An initial $300 compounded for 2 years at 7%. C. The present value of $300 due in 1 year at a discount rate of 7%. d, The present value of $300 due in 2 years at a discount rate of 7%.

Answer 1

a.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$300*(1.07)^1

=$321

b.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$300*(1.07)^2

=$343.47

c.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=$300/1.07

=$280.37(Approx).

d.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=$300/1.07^2

=$262.03(Approx).