Future Value and Present Value

Future Value and Present Value. Future Value and Present Value Assignment (Total 40 Points)

Question 1: (10 Points)

Calculate the future value of an investment of \$8200, after 5 months, earning 6% APR, compounded monthly, by calculate manually.

Reminder: Be sure to show your work, and to calculate the period interest before solving.

Question 2: (10 Points)

Find the future value of a \$15,000 Certificate of Deposit that pays compounded interest every three months at the rate of 6% per year. The CD has a term of 5 years.

1. Calculate the FV (Future Value) using the “Future Value or Compound Amount of \$1.00” table in your textbook.

Reminder: To use Table 13-1, you need to calculate the Number of Periods and the Interest Rate per Period.

1. Calculate the FV (Future Value) using the formula: FV = P(1 + R)N

Reminder: Always show work. You can do this by stating the values that you are substituting into the formula.

1. How much interest was earned on the investment?

Use either the result from Part 2a or Part 2b, since they are slightly different for your calculation.

Question 3: (10 Points)

You inherit \$45,000 and decide to invest it for 90 days compounded daily at 9% annual interest. After the 90 days, you are going to invest your new-found money in a startup business.

1. How much interest is earned on this investment?

You can either use the Future Value formula or Table 13-2

Future Value Formula
FV = P(1 + R)N
Reminder: R = Interest Rate per period (day)

Table 13-2: Compound Interest on \$100, Compounded Daily (365 days) (Exact Time, Exact Interest Basis)
Reminder – The Table is for compound interest on each \$100.

1. How much money will you have to invest in the startup after the 90 days?

Question 4: (10 Points)

How much money must be invested into an account paying 6% annually, compounded annually, to have \$500,000 in 25 years when I retire?

1. Calculate the PV (Present Value) using the “Present Value of \$1.00” table in your textbook.

Remember: To use Table 13-3, you need the Number of Periods and the Interest Rate per Period.

1. Calculate the PV (Present Value) using the formula: PV = FV / (1 +R)N

Reminder: Always show work. You can do this by stating the values that you are substituting into the formula.

1. How much interest did you earn over the life of the investment?

You can use either the result from Part 4a or Part 4b for your calculations, since they are slightly different. Show your work.

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