Question

Find the following values.

Compounding/discounting occurs annually.
a. An initial $500 compounded for 1 year at
6percent.
b. An initial $500 compounded for 2 years at
6percent.
c. The present value of $500 due in 1 year at a
discountrate of 6 percent.
d. The present value of $500 due in 2 years at a
discountrate of 6 percent.

Answer 1

Answer with Step-by-step explanation:

We are given that

a.P=$500

Time=1 year

r=6%

FV=
`P(1+(r)/(100))^n`

Where P=Present value

r=Annual rate of interest

n=Time(in year)

Using the formula

FV=
`500(1+(6)/(100))^1=`$530

Hence, compounding value=$530

2.P=$500

n=2 years

`r=6`%

Substitute the values then we get

FV=
`500(1+(6)/(100))^2=`$561.8

Hence, compounding value=$561.8

3.Present value=$500

r=6%

n=1 year

Substitute the values

`500=P(1+(6)/(100))=1.06P`

`P=(500)/(1.06)`=$471.7

Hence, discounting value=$471.7

4.Present value=$500

r=6%

n=2 years

Substitute the values then we get

`500=P(1+(6)/(100))^2=(1.06)^2P`

`P=(500)/((1.06)^2)=`$445

Hence, discounting value=$445