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)

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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