Question

Chapter 1 5. Using the present and future value tables in Appendix A, the appropriate calculations on the Garman/Forguecompanion website, or a financial calculator, calculate the following: (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. (b)A person is offered a gift of $5,000 now or $8,000 five years from now. If such funds could be ex-pected to earn 8 percent over the next five years, which is the better choice

Answer 1

a. Present value = PV(-PMT, N, I/Y)

Present value = PV(-6000, 10, 6)

Present value = $44,160.52

So, the amount to deposit today = $44,160.52

B: Present Value of choice 1 = $5,000

Choice 2: Present value = PV(FV, N, I/Y)

Present value = PV(8000, 5, 8)

Present value = $5,444.67

Hence, Choice 2 is the better choice since it has higher present value ($5,444.67 > $5,000)