Practice Exercises

Question $25$

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Time Value of Money: Basics

Using Excel or the equations and tables in Appendix $12$A of this chapter, determine the answers to each of the following independent situations:

Round answers to the nearest whole number.

$($a$)$ The future value in two years of $$5,000$ deposited today in a savings account with interest compounded annually at $4\%.$

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$($b$)$ The present value of $$15\mathrm{.}000$ to be received in four years, discounted at $10\%.$

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$($c$)$ The present value of an annuity of $$2,500$ per year for five years discounted at $12\%.$

$

$($d$)$ An initial investment of $$69,845$ is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is $8\%.$

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$($e$)$ A proposed investment will provide cash flows of $$20,000,$$$25,000,$ and $$30,000$ at the end of Years $1,2,$ and $3,$ respectively. Using a discount rate of $6\%,$ determine the present value of these cash flows.

Year $1$$

Year $2$$

Year $3$$

$($f$)$ Find the present value of an investment that will pay $$3,000$ at the end of Years $10,11,$ and $12.$ Use a discount rate of $8\%.$

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$58F$

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