Find the following values. Compounding/discounting occurs annually.a. An initial $500 compounded for...

Question

Find the following values. Compounding/discounting occurs annually.
a. An initial $500 compounded for 10 years at 6%
b. An initial $500 compounded for 10 years at 12%
c. The present value of $500 due in 10 years at 6%
d. The present value of $1,552.90 due in 10 years at 12% and at 6%
e. Define present value and illustrate it using a time line with data from Part d. How are present values affected by interest rates?

Robert · Accepted Answer

(a) An initial $500 compounded for 10 year at6%
(a) An initial $500 compounded for 10 year at6%
Present Value (PV) = $500
Time (t) = 10 years
Interest Rate (r) = 6% or 0.06 per year
Future Value =?
We know that;
FV = PV * (1+r) t
FV = 500 * (1+0.06) 10
FV = 500 * (1.06) 10
FV = 500 * 1.790848
FV = $895.42
(b) An initial $500 compounded for 10 years at12%
Present Value (PV) = $500
Time (t) = 10 year
Interest Rate (r) = 12% or 0.12 per year
Future Value =?
We know that;
FV = PV * (1+r) t
FV = 500 * (1+0.12) 10
FV = 500 * (1.12) 10
FV = 500 * 3.105848
FV = $1552.

Find the following values. Compounding/discounting occurs annually. a. An initial $500 compounded for 10 years at 6% b. An initial $500 compounded for 10 years at 12% c. The present value of $500 due...

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