If the interest rate this year is 7.6% and the interest rate next year will be 9
ID: 2651881 • Letter: I
Question
If the interest rate this year is 7.6% and the interest rate next year will be 9.6%, 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? (Need steps for calculating FV and PV when interest changes every year)
If the interest rate this year is 7.6% and the interest rate next year will be 9.6%, 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? (Need steps for calculating FV and PV when interest changes every year)
Explanation / Answer
Answer: Calculation of future value :
FV = PV × (1 + r ) × (1 + r 1 )
= $1 × 1.076 × 1.096 = $1.1793
Calculation of present value:
PV=$1/(0.929+0.832489)=0.5678