Time Value of Money: Basics

Using Excel or the equations and tables in Appendix $12$A of this chapter, determine the answers to each of the following independent situations.

Round answers to the nearest whole number.

$($a$)$ The future value in two years of $$2,000$ deposited today in a savings account with interest compounded annually at $6$ percent.

$Answer

$($b$)$ The present value of $$8,000$ to be received in four years, discounted at $12$ percent.

$Answer

$($c$)$ The present value of an annuity of $$2,000$ per year for five years discounted at $14$ percent.

$Answer

$($d$)$ An initial investment of $$32,010$ is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is $12$ percent.

$Answer

$($e$)$ A proposed investment will provide cash flows of $$20,000,$ $$8,000,$ and $$6,000$ at the end of Years $1,2,$ and $3,$ respectively. Using a discount rate of $20$ percent, determine the present value of these cash flows.

Year $1$

Year $2$

Year $3$

$($f$)$ Find the present value of an investment that will pay $$5,000$ at the end of Years $10,11,$ and $12.$ Use a discount rate of $14$ percent.

$Answer