Please teach me by showing your calculations step by step because I\'m confused
ID: 2714845 • Letter: P
Question
Please teach me by showing your calculations step by step because I'm confused how to do these problems. I need your help to learn..please show all work (except IRR & NPV). For example, for question 1a, you should show the following as your work/steps: PV=$800, I=6%, N=1, so FV= (your calculation).
1. Find the following values for a lump sum assuming annual compounding:
a. The future value of $800 invested at 6 percent for one year
b. The future value of $800 invested at 6 percent for five years
c. The present value of $800 to be received in one year when the opportunity cost rate is 6 percent
d. The present value of $800 to be received in five years when the opportunity cost rate is 6 percent
2. Find the following values assuming a regular, or ordinary, annuity:
a. The present value of $500 per year for ten years at 10 percent
b. The future value of $500 per year for ten years at 10 percent
c. The present value of $300 per year for five years at 5 percent
d. The future value of $300 per year for five years at 5 percent
1. Find the following values for a lump sum assuming annual compounding:
a. The future value of $800 invested at 6 percent for one year
b. The future value of $800 invested at 6 percent for five years
c. The present value of $800 to be received in one year when the opportunity cost rate is 6 percent
d. The present value of $800 to be received in five years when the opportunity cost rate is 6 percent
Explanation / Answer
Answer:
For finding out the future value, FV we can use this formula:
FV = PV (1+r%)n
Here, FV = future value
PV = present value
r% = rate of discount
and n = number of years
Similarly PV = FV/(1+r%)n
Therefore,
FV = 800x(1+6%)1 = 800 x 1.06 = $848
Therefore,
FV = 800x(1+6%)5 = 800 x 1.065 = $1070.58
Therefore,
PV = 800 / (1+6%)1 = 800 / 1.06 = $754.716
Therefore,
PV = 800 / (1+6%)5 = 800 / (1.06)5 = $597.8
Q2.
a. Annuity= $500= FV , rate = 10%, Time = 10 years
so we will use this formula of present value:
PV = annuity/rate% x (1 - 1/(1+rate%)n)
therefore,
PV = 500/10% x (1 - 1/(1+10%)^10)
PV= 5000 x 0.6144 = $3072.28
b.
Annuity= $500, rate = 10%, Time = 10 years
so we will use this formula of Future value:
FV = annuity/rate% x ((1+r%)n - 1)
therefore,
FV = 500/10% x ((1+10%)10 - 1)
FV= 5000 x 1.59374 = $7968.7123
a. Annuity= $300= FV , rate = 5%, Time = 5 years
so we will use this formula of present value:
PV = annuity/rate% x (1 - 1/(1+rate%)n)
therefore,
PV = 300/5% x (1 - 1/(1+5%)^5)
PV= 6000 x 0.2164738 = $1298.843
b.
Annuity= $300, rate = 5%, Time = 5 years
so we will use this formula of Future value:
FV = annuity/rate% x ((1+r%)n - 1)
therefore,
FV = 300/5% x ((1+5%)5- 1)
FV= 6000 x 0.27628 = $1657.689