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3. Computing the Time Value of Money. Using time value of money tables, calculate the following. a. The future value of $450 six years from now at 7 percent. b. The future value of $800 saved each
year for 10 years at 8 percent. c. The amount a person would have to deposit today (present value) at a 6 percent interest rate to have $1,000 five years from now. d. The amount a person would have to deposit today to be able to take out $500 a year for 10 years from an account earning 8 percent.
The answer is a. The future value of $450 six years from now at 7 percent.
Expert answered|bongche|Points 1674|
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Asked 4/22/2012 12:52:27 AM
Updated 4/17/2013 4:55:36 PM
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Solution:
F = P (1 + i)^n
a. The future value of $450 six years from now at 7 percent.

F = 450 * 1.07^6 = $ 675.33

b. The future value of $800 saved each year for 10 years at 8 percent.
each year saving, A = $800
F = A[(1+i)^n - 1]/i = 800 [1.08^10 -1]/ 0.08 = $11,589.25

c. The amount a person would have to deposit today (present value) at a 6 percent interest rate to have $1,000 five years
from now.
F = P(1+i)^n
1000 = P* 1.06^5
P = $747.26 (the present value)

d. The amount a person would have to deposit today to be able to take out $500 a year for 10 years from an account earning
8 percent

P(1+i)^n = A[(1+i)^n - 1]/i
P * 1.08^10 = 500 [1.08^10 -1]/0.08
P = $15,637.70 (amount to be deposited today)
Added 4/17/2013 4:55:36 PM
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