Question

Present and future values for different interest rates

Find the following values. Compounding/discounting occurs annually. Round your answers to the nearest cent.

An initial $700 compounded for 10 years at 8%.

$

An initial $700 compounded for 10 years at 16%.

$

The present value of $700 due in 10 year at a discount rate of 8%.

$

The present value of $2,800 due in 10 years at 16%.

$

The present value of $2,800 due in 10 years at 8%.

$

Define present value.

The present value is the value today of a sum of money to be received in the future and in general is less than the future value.

The present value is the value today of a sum of money to be received in the future and in general is greater than the future value.

The present value is the value today of a sum of money to be received in the future and in general is equal to the future value.

The present value is the value in the future of a sum of money to be received today and in general is less than the future value.

The present value is the value in the future of a sum of money to be received today and in general is greater than the future value.

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Final value formula:

FV= PV*(1+i)^n

Present value formula:

PV= FV/(1+i)^n

A) An initial $700 compounded for 10 years at 8%.

FV= 700*(1+0.08)^10= $1,511.25

B) An initial $700 compounded for 10 years at 16%.

FV= 700*(1.16)^10= $3,088

C) The present value of $700 due in 10 year at a discount rate of 8%.

PV= 700/(1.08)^10= $324.24

D) The present value of $2,800 due in 10 years at 16%.

PV= 2,800/1.16^10= $634.71

E) The present value of $2,800 due in 10 years at 8%.

PV= 2,800*(1.08)^10= $1,296.94

F) To define the present value we need to know one important principle.

1 dollar today is better than 1 dollar tomorrow.

This is because of the opportunity cost of money. If I get one dollar today, I can invest it and gain by the passing of time more than if I invest it tomorrow. Therefore, the present value is:

The present value is the value today of a sum of money to be received in the future and in general, is less than the future value.