Question

Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually.

a. An initial $500 compounded for 1 year at 6%
b. An initial $500 compounded for 2 years at 6%
c. The present value of $600 due in 1 year at a discount rate of 6%.
d. The present value of $600 due in 2 years at a discount rate of 6%.

Answer 1

a) Future Value = $530

b) Future Value = $561.8

c) Present Value =$566.037

d) Present Value =$533.99

Step-by-step explanation:

FV = PV × (1+r)^n

FV -future Value , r- interest rate,n- number of years , PV-present Value

FV = 500 ×(1.06)^1 =

Future Value = $530

b

FV = 500 × 1.06^2 =

Future Value = $561.8

c) Present Value

PV = FV × (1+r)^(-n)

PV = 600 ×1.06^(-1)=566.037

Present Value =$566.037

d)

PV = FV × (1+r)^(-n)

FV -future Value , r- interest rate,n- number of years , PV-present Value

PV = 600 ×1.06^(-2) = 533.99

Present Value =$533.99

a) Future Value = $530

b) Future Value = $561.8

c) Present Value =$566.037

d) Present Value =$533.99