Chapter 5, Problem 5.10E

1.

To determine

Present value:

Present value refers to the present worth of the money that is received in future in a lump sum or as series of cash flows at a specified interest rate. When these future sums of money are discounted at a higher rate, the present value of the future cash flows gets lower.

$\text{Present value of an amount = }\frac{\text{Future value}}{{\left(\text{1 + interest rate}\right)}^{\text{number}\text{of}\text{periods}}}$

Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The future value of an amount is calculated by using the following formula:

$\text{Future value of an amount = Present value}\times {\left(\text{1+ Interest rate}\right)}^{\text{Number}\text{of}\text{periods}}$

To determine: The present value of the following options.

2.

To determine

The required fund balance after last payment is made on December 31, 2027.