Compute the present value of a
$150 cash flow for the following combinations of discount rates and times: (Do not round intermediate calculations. Round your answers
to 2 decimal places.)
|
Present
Value
|
|
a. r = 12%, t
= 8 years
|
$
|
b. r = 12%, t
= 16 years
|
|
c. r = 6%, t
= 8 years
|
|
d. r = 6%, t
= 16 years
|
|
Explanation:
a. $150/(1.12)8 =
$60.58
|
b. $150/(1.12)16 =
$24.47
|
c. $150/(1.06)8 =
$94.11
|
d. $150/(1.06)16 =
$59.05
|
Compute the future value of a $150
cash flow for the same combinations of rates and times: (Do not round intermediate calculations. Round your answers
to 2 decimal places.)
|
Future
Value
|
|
a. r
= 12%, t = 8 years
|
$
|
b. r
= 12%, t = 16 years
|
|
c. r = 6%, t
= 8 years
|
|
d. r = 6%, t
= 16 years
|
|
Explanation:
a. $150 × (1.12)8 =
$371.39
|
b. $150 × (1.12)16 =
$919.56
|
c. $150 × (1.06)8 =
$239.08
|
d. $150 × (1.06)16 =
$381.05
|
In 1880 five aboriginal trackers
were each promised the equivalent of 100 Australian dollars for helping to
capture the notorious outlaw Ned Kelley. In 1994 the granddaughters of two of
the trackers claimed that this reward had not been paid. The Victorian prime
minister stated that if this was true, the government would be happy to pay
the $100. However, the granddaughters also claimed that they were entitled to
compound interest.
|
a.
|
How much was each entitled to if
the interest rate was 3%? (Do not round
intermediate calculations. Round your answer to 2 decimal places.)
|
Future value
|
$
|
b.
|
How much was each entitled to if
the interest rate was 6%? (Do not round
intermediate calculations. Round your answer to 2 decimal places.)
|
Future value
|
$
|
Explanation:
a.
$100 × (1.03)114 =
$2,906.99
|
b.
$100 × (1.06)114 =
$76,712.94
|
a-1.
|
Calculate the present value of an
annual payment of $900 you would received for 12 years if the interest
rate is 3%. (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
|
Present value
|
$
|
a-2.
|
Calculate the present value of an
annual payment of $700 you would received for 17 years if the interest
rate is 3%. (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
|
Present value
|
$
|
a-3.
|
Which option would you prefer?
|
$700 a year for 17 years
|
b-1.
|
Calculate the present value of an
annual payment of $900 you would received for 12 years if the interest
rate is 12%. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
|
Present value
|
$
|
b-2.
|
Calculate the present value of an
annual payment of $700 you would received for 17 years if the interest rate
is 12%. (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
|
Present value
|
$
|
b-3.
|
Which option would you prefer?
|
$900 a year for 12 years
|
rev: 01_28_2012
Explanation:
You should compare the present
values of the two annuities.
|
