Question

Use future value and present value calculations to determine the following: (a) The future value of a $660 savings deposit after eight years at an annual interest rate of 3 percent. Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) (b) The future value of saving $1,660 a year for five years at an annual interest rate of 6 percent. Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) (c) The present value of a $2,310 savings account that will earn 3 percent interest for four years. Use Exhibit 1-C. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

Answer 1

a. $836.07

b. $9,357.57

c. $8586.50

Step-by-step explanation:

The formula for calculating future value:

FV = P (1 + r)^n

FV = Future value

P = Present value

R = interest rate

N = number of years

$660(1.03)^8 = $836.07

b. The formula for calculating future value of an annuity = A (B / r)

B = [(1 + r)^n] - 1

(1.06)^5 - 1 = 0.338226

( 0.338226 / 0.06) x $1,660 = $9,357.57

c. Present value can be found using a financial calculator

Cash flow each year from year 1 to 4 = $2310

i = 3%

present value = $8586.50

To find the NV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute