Time Value of Money: Basics

Using the equations and tables in Appendix 25A ofthis chapter, determine the answers to each of the following independent situations.

Round answers to the nearest whole number.

(a) The future value in three years of $1,000 deposited today in a savings account with interest compounded annually at 8 percent.

$Answer

(b) The present value of $5,000 to be received in five years, discounted at 10 percent.

$Answer

(c) The present value of an annuity of $9,000 per year for six years discounted at 10 percent.

$Answer

(d) An initial investment of $14,904 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 $50,000, $10,000, and $7,000 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 $Answer

Year 2 $Answer

Year 3 $Answer

(f) Find the present value of an investment that will pay $7,000 at the end of Years 10, 11, and 12. Use a discount rate of 12 percent.

$Answer