APPLY THE CONCEPTS: Present value of a single amount in the future (better overview of question in attachment) As it is important to know what a current investment will yield at a point in the future, it is equally important to understand what investment would be required today in order to yield a required future return. The following timeline displays what present investment is required in order to yield $8,000 three years from now, assuming annual compounding at 5%. Future Value: $8,000 Year 1 Year 2 Year 3 Present Value: ? The most straightforward method for calculating the present value of a future amount is to use the Present Value Table. By multiplying the future amount by the appropriate figure from the table, one may adequately determine the present value. + Present Value of a Future Amount Table1 - Present Value of $1 at Compound Interest Period 5% 6% 7% 8% 9% 10% 11% 12% 1 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 2 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 3 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 4 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 5 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 6 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 7 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 8 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 9 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 10 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 11 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 12 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 13 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 14 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 15 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 16 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 17 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 18 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 19 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 20 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 Using the previous table, enter the correct factor for three periods at 5%: Future value x Factor = Present value $8,000 x (0.864, 0.751, 0.846 or 0.684) = $6,912 You may want to own a home one day. If you are 20 years old and plan on buying a $500,000 house when you turn 30, how much will you have to invest today, assuming your investment yields an 8% annual return? $__________

APPLY THE CONCEPTS: Present value of a single amount in the future (better overview of question in attachment) As it is important to know what a current investment will yield at a point in the future, it is equally important to understand what investment would be required today in order to yield a required future return. The following timeline displays what present investment is required in order to yield $8,000 three years from now, assuming annual compounding at 5%. Future Value: $8,000 Year 1 Year 2 Year 3 Present Value: ? The most straightforward method for calculating the present value of a future amount is to use the Present Value Table. By multiplying the future amount by the appropriate figure from the table, one may adequately determine the present value. + Present Value of a Future Amount Table1 - Present Value of $1 at Compound Interest Period 5% 6% 7% 8% 9% 10% 11% 12% 1 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 2 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 3 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 4 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 5 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 6 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 7 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 8 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 9 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 10 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 11 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 12 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 13 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 14 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 15 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 16 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 17 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 18 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 19 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 20 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 Using the previous table, enter the correct factor for three periods at 5%: Future value x Factor = Present value $8,000 x (0.864, 0.751, 0.846 or 0.684) = $6,912 You may want to own a home one day. If you are 20 years old and plan on buying a $500,000 house when you turn 30, how much will you have to invest today, assuming your investment yields an 8% annual return? $__________

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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APPLY THE CONCEPTS: Present value of a single amount in the future

(better overview of question in attachment)

As it is important to know what a current investment will yield at a point in the future, it is equally important to understand what investment would be required today in order to yield a required future return. The following timeline displays what present investment is required in order to yield $8,000 three years from now, assuming annual compounding at 5%.

				Future Value: $8,000


	Year 1	Year 2	Year 3
Present Value: ?

The most straightforward method for calculating the present value of a future amount is to use the Present Value Table. By multiplying the future amount by the appropriate figure from the table, one may adequately determine the present value.

+ Present Value of a Future Amount

Table1 - Present Value of $1 at Compound Interest
Period	5%	6%	7%	8%	9%	10%	11%	12%
1	0.952	0.943	0.935	0.926	0.917	0.909	0.901	0.893
2	0.907	0.890	0.873	0.857	0.842	0.826	0.812	0.797
3	0.864	0.840	0.816	0.794	0.772	0.751	0.731	0.712
4	0.823	0.792	0.763	0.735	0.708	0.683	0.659	0.636
5	0.784	0.747	0.713	0.681	0.650	0.621	0.593	0.567
6	0.746	0.705	0.666	0.630	0.596	0.564	0.535	0.507
7	0.711	0.665	0.623	0.583	0.547	0.513	0.482	0.452
8	0.677	0.627	0.582	0.540	0.502	0.467	0.434	0.404
9	0.645	0.592	0.544	0.500	0.460	0.424	0.391	0.361
10	0.614	0.558	0.508	0.463	0.422	0.386	0.352	0.322
11	0.585	0.527	0.475	0.429	0.388	0.350	0.317	0.287
12	0.557	0.497	0.444	0.397	0.356	0.319	0.286	0.257
13	0.530	0.469	0.415	0.368	0.326	0.290	0.258	0.229
14	0.505	0.442	0.388	0.340	0.299	0.263	0.232	0.205
15	0.481	0.417	0.362	0.315	0.275	0.239	0.209	0.183
16	0.458	0.394	0.339	0.292	0.252	0.218	0.188	0.163
17	0.436	0.371	0.317	0.270	0.231	0.198	0.170	0.146
18	0.416	0.350	0.296	0.250	0.212	0.180	0.153	0.130
19	0.396	0.331	0.277	0.232	0.194	0.164	0.138	0.116
20	0.377	0.312	0.258	0.215	0.178	0.149	0.124	0.104

Using the previous table, enter the correct factor for three periods at 5%:

Future value	x	Factor	=	Present value
$8,000	x	(0.864, 0.751, 0.846 or 0.684)	=	$6,912

You may want to own a home one day. If you are 20 years old and plan on buying a $500,000 house when you turn 30, how much will you have to invest today, assuming your investment yields an 8% annual return? $__________

APPLY THE CONCEPTS: Present value of a single amount in the future
As it is important to know what a current investment will yield at a point in the future, it is equally important to understand what investment would be required today in order to yield a required future return. The following timeline displays what present investment is required in order to yield $8,000 three years
from now, assuming annual compounding at 5%.
Future Value: $8,000
Year 1
Year 2
Year 3
Present Value: ?
The most straightforward method for calculating the present value of a future amount is to use the Present Value Table. By multiplying the future amount by the appropriate figure from the table, one may adequately determine the present value.
Instructions for using present value tables
+ Present Value of a Future Amount
Table1 - Present Value of $1 at Compound Interest
Period
5%
6%
7%
8%
9%
10%
11%
12%
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.893
2
0.907
0.890
0.873
0.857
0.842
0.826
0.812
0.797
3
0.864
0.840
0.816
0.794
0.772
0.751
0.731
0.712
4
0.823
0.792
0.763
0.735
0.708
0.683
0.659
0.636
0.784
0.747
0.713
0.681
0.650
0.621
0.593
0.567
6
0.746
0.705
0.666
0.630
0.596
0.564
0.535
0.507
7
0.711
0.665
0.623
0.583
0.547
0.513
0.482
0.452
0.677
0.627
0.582
0.540
0.502
0.467
0.434
0.404
0.645
0.592
0.544
0.500
0.460
0.424
0.391
0.361
10
0.614
0.558
0.508
0.463
0.422
0.386
0.352
0.322
11
0.585
0.527
0.475
0.429
0.388
0.350
0.317
0.287
12
0.557
0.497
0.444
0.397
0.356
0.319
0.286
0.257
13
0.530
0.469
0.415
0.368
0.326
0.290
0.258
0.229
14
0.505
0.442
0.388
0.340
0.299
0.263
0.232
0.205
15
0.481
0.417
0.362
0.315
0.275
0.239
0.209
0.183
16
0.458
0.394
0.339
0.292
0.252
0.218
0.188
0.163
17
0.436
0.371
0.317
0.270
0.231
0.198
0.170
0.146
18
0.416
0.350
0.296
0.250
0.212
0.180
0.153
0.130
19
0.396
0.331
0.277
0.232
0.194
0.164
0.138
0.116
20
0.377
0.312
0.258
0.215
0.178
0.149
0.124
0.104
Using the previous table, enter the correct factor for three periods at 5%:
Future
Present
x Factor
value
value
$8,000
= $6,912
You may want to own a home one day. If you are 20 years old and plan on buying a $500,000 house when you turn 30, how much will you have to invest today, assuming your investment yields an 8% annual return?

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