Time Value of Money: Basics

Using the equations and tables in Appendix 12A of this chapter, determine the answers to each of

the following independent situations:

a. The future value in two years of $2,000 deposited today in a savings account with interest

compounded annually at 6 percent.

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

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

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.

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.

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.