(a) The amount a person would need to deposit today to be able to withdraw $6,000 each year for ten years from an account earning 6 percent. N 10 I/Y 6 PV (compute) PMT 6,000 FV 0 (b) A person is offered a gift of $5,000 now or $8,000 five years from now. If such funds could be expected to earn 8 percent over the next five years, which is the better choice? N 5 5 I/Y 8 8 PV (compute) 5,000 PMT 0 O FV (compute) 8,000 (c) A person wants to have $3,000 available to spend on an overseas trip four years from now. If such funds could be expected to earn 6 percent, how much should be invested in a lump sum to realize the $3,000 when needed? IN 4 1/4 6 PV (compute) PMT 0 FV 3,000 3. Present and Future Values. Megan Barry, a freshman horticulture major at the University of Minnesota, has some financial questions for the next three years of school and beyond. Answers (c) Megan is already looking ahead to graduation and a job, and she wants to buy a new car not long after her graduation. If after graduation she begins an investment program of $2,400 per year in an investment yielding 4 percent, what will be the value of the fund after three years? IN 3 I/Y 4 PV 0 PMT -2,400 FV (compute) (d) Megan's Aunt Karroll told her that she would give Megan $1,000 at the end of each year for the next three years to help with her college expenses. Assuming an annual interest rate of 2 percent, what is the present value of that stream of payments? IN 3 I/Y 2 PV (compute) PMT 1,000 FV 0 4. Future Values. (a) The future value of lump-sum investment of $4,000 in four years that earns 6 percent. N 4 I/Y 6 PV -4,000 PMT 0 FV (compute) (b) The future value of $1,500 saved each year for three years that earns 6 percent. IN 3 I/Y 6 PV 0 PMT - 1,500 FV (compute) (c) A person who invests $1,200 each year finds one choice that is expected to pay 3 percent per year and another choice that may pay 4 percent. What is the difference in return if the investment is made for four years? IN 4. 4 1/Y 3 4 PV 0 0 PMT - 1,200 - 1,200 FV (compute) (d) The amount a person would need to deposit today with a 5 percent interest rate to have $2,000 in three years. IN 3 1/4 5 PV (compute) PMT 0 FV 2,000