If the interest rate this year is 8.8% and the interest rate next year will be 1
ID: 2613185 • Letter: I
Question
If the interest rate this year is 8.8% and the interest rate next year will be 10.8%, what is the future value of $1 after 2 years? What is the present value of a payment of $1 to be received in 2 years? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
If the interest rate this year is 8.8% and the interest rate next year will be 10.8%, what is the future value of $1 after 2 years? What is the present value of a payment of $1 to be received in 2 years? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Explanation / Answer
Working Note :
Future Value of 1 = First year = 1*(1+8.8%)^1 = 1.09
Second Year = 1.09*(1+10.8%)^1 = 1.21
Present Value of $ 1 = 1.21/(1+10.8%)^2 = 0.99
Future value 1.21 Present value 0.99