Chapter B, Problem 1QS

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 1:

We have to determine the interest rate column and number of period row while estimating future value.

Answer to Problem 1QS

The interest rate column we will refer is 12% and year row will be of 2 years.

Explanation of Solution

Since the rate of interest is 12% annually and time period is 2 years. Therefore the interest rate column will be of 12% and time period row will be of 2 years.

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 2:

We have to determine the interest rate column and number of period row while estimating future value.

Answer to Problem 1QS

The interest rate column we will refer is 3% and year row will be of 4 years.

Explanation of Solution

Since the rate of interest is 6% annual rate, compounded semi annually and time period is 2 years. Therefore the interest rate column will be of 3% (6%/2) and time period row will be of 4(2*2) years.

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 3:

We have to determine the interest rate column and number of period row while estimating future value.

Answer to Problem 1QS

The interest rate column we will refer is 2% and year row will be of 8 years.

Explanation of Solution

Since the rate of interest is 8% annual rate, compounded quarterly and time period is 2 years. Therefore the interest rate column will be of 2% (8%/4) and time period row will be of 8(2*4) years.

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 4:

We have to determine the interest rate column and number of period row while estimating future value.

Answer to Problem 1QS

The interest rate column we will refer is 1% and year row is not shown in table B.2

Explanation of Solution

Since the rate of interest is 12% annual rate, compounded monthly and time period is 2 years. Therefore the interest rate column will be of 1% (12%/12) and time period row will be of 24(2*12) years but it is not shown in table B.2