Chapter 6, Problem 6.10E

(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 single amount that J will invest on December 31, 2016.

(2)

To determine

The required amount of each deposit when J makes five equal deposits.

(3)

To determine

The required amount when J makes five equal deposits on each December 31, beginning on December 31, 2016.