Chapter 6, Problem 4E

To determine

Present value: The actual or current worth of a future sum of money that is invested refers to the present value. Generally, the present value of an investment will be lesser than its future value or it might remain the same. It is useful to calculate bond yields, net present value, and spot rates.

Future value: A nominal value of an asset or investment at a specific period with an assumed interest rate is termed future value. Future value is can be computed by multiplying the amount invested at present with the future value factor.

(a)

To determine the future value.

Given scenario: An amount of $4,000 is deposited at the beginning of 20 periods. It is compounded at an interest rate of 8%.

To determine

(b)

To determine the present value.

Given scenario: An amount of $2,500 is to be received at the beginning of 30 periods each. It is discounted at a rate of 5% compound interest.

To determine

(c)

To determine the future value as of the end of the fifteenth period.

Given scenario: Fifteen periodic payments of $2,000 are made at the beginning of each period. It is compounded at 10% interest rate.

To determine

(d)

To determine the present value of the given scenario using the interest table.

Given scenario: $1,000 is received at the beginning of 6 periods each. It is discounted at 9% compound interest.