Part A

Calculate the following Future Values and note the relationships between Future Value and interest rates and the length of time of the investment. Future Value: amount to which an investment will grow after earning interest

-A: Case 1: Years invested remains at 5 years; the interest rate changes. (2 points)

1. FV of $100 invested at 3% for 5 years:

2. FV of $100 invested at 5% for 5 years:

3. FV of $100 invested at 7% for 5 years:

4. As interest rate increases, the FV ________________.

-B: Case 2: The interest rate remains at 3%; the years invested changes. (2 points)

1. FV of $100 invested at 3% for 5 years:

2. FV of $100 invested at 3% for 10 years:

3. FV of $100 invested at 3% for 15 years:

4. As the length of time the money is invested increases, the FV ____________.

Calculate the following Future Value of an Annuity and note the relationships between Future Value of an Annuity and interest rates and the length of time of the investment. Future Value of an Annuity: amount by which a series of equal payments (definition of annuity) will grow when invested at an interest rate for a specified amount of time

Examples of annuities: car/house payments when the interest rate does not change; apartment rent; paychecks when you get paid a fixed salary (can be weekly, biweekly, monthly, etc)

Future Value of Annuity (FVA):

-C: Case 3: Years invested remains at 5 years; the interest rate changes. (2 points)

1. FVA of $100 invested each year at 3% for 5 years:

2. FVA of $100 invested each year at 5% for 5 years:

3. FVA of $100 invested each year at 7% for 5 years:

4. As interest rate increases, the FVA ______________.

-D: Case 4: The interest rate remains at 3%; the years invested changes. (2 points)

1. FVA of $100 invested each year at 3% for 5 years:

2. FVA of $100 invested each year at 3% for 10 years:

3. FVA of $100 invested each year at 3% for 15 years:

4. As the length of time the money is invested increases, the FVA ___________.

Calculate the following Present Value and note the relationships between the Present Value and discount rates and the length of time the payment is received. Present Value: todays value of a future cash flow

-E: Case 5: Years invested remains at 5 years; the discount rate changes. (2 points)

1. PV of $100 received in 5 years with a discount rate of 3%:

2. PV of $100 received in 5 years with a discount rate of 5%:

3. PV of $100 received in 5 years with a discount rate of 7%:

4. As discount rate increases, the PV _______________.

-F: Case 6: The discount rate remains at 3%; the years invested changes. (2 points)

1. PV of $100 received in 5 years with a discount rate of 3%:

2. PV of $100 received in 10 years with a discount rate of 3%:

3. PV of $100 received in 15 years with a discount rate of 3%:

4. As the length of time the money is received increases, the PV __________________.

Calculate the following Present Value and note the relationships between the Present Value and discount rates and the length of time the payment is received. Present Value of an Annuity (PVA): todays value of a series of equal future cash flows

-G: Case 7: Years invested remains at 5 years; the discount rate changes. (2 points)

1. PVA of $100 received each year at 3% for 5 years:

2. PVA of $100 received each year at 5% for 5 years:

3. PVA of $100 received each year at 7% for 5 years:

4. As the discount rate increases, the PVA _________________.

-H: Case 8: The discount rate remains at 3%; the years invested changes. (2 points)

1. PVA of $100 received each year at 3% for 5 years:

2. PVA of $100 received each year at 3% for 10 years:

3. PVA of $100 received each year at 3% for 15 years:

4. As the length of time the money is received increases, the PVA _________________.