Click here to read the eBook: Future Values Time Value of Money: Lump Sums s Singlpayments are known as lump sums. We can solve for the future value or the present value of a lump sum as we discuss below 6 Fnding the future value (FV), or compounding is the process of going from today's values to future amounts. The FV equation is: FV PV(1+N Here, PV- present value; I-interest rate per year, and N- number of periods. You can use caloulators and spreadsheets to find future values. A graph of the any sum grows over time at various interest rates. The greater the interest rate, the faster Finding the present value p is called discounting, and it is simply the reverse of compounding In general, the present value of a cash flow due N years in the future is the amount which, if it were on hand today, would grow to equal the given future amount. The PV equation is: process shows how the growth rate. Present value = PV- A graph of the discounting process shows how the present value of any sum to be received in the future decreases and approaches as the years to receipt increases, and the present value declines faster at Nighernterest rates. The fundamental goal of financial mansgement is to maximize the firm's value, and the value of any asset is the preventvalue of its expected future cash flows One can solve for either the interest rate or the number of periods using the FV and the PV equations. The easiest way to solve for these variables is with a financial calculator or a spreadsheet Quantitative Problem 1: You deposit $2,300 into an account that pays 7% per year. Your plan is to withdraw this amount at the end of 5 years to use for a down payment on a new car. How much will you be able to withdraw at the end of 5 years? Round your answer to the nearest cent. Do not round intermediate calculations. Quantitative Problem 2: Today, you invest a lump sum amount in an equity fund that provides an 12% annual return. You would like to have $10,300 in 6 years to help with a down payment for a home. How much do you need to deposit today to reach your $10,300 goal? Round your answer to the nearest cent. Do not round intermediate calculations. Check My Work 2/14/2019