At the end of five years, how much is an initial $500 deposit followed by five year-end, annual $100 payments worth, assuming a compound annual interest rate of (i) 10 percent? (ii) 5 percent? (iii) 0 percent?

At the end of five years, how much is an initial $500 deposit followed by five year-end, annual $100 payments worth, assuming a compound annual interest rate of (i) 10 percent? (ii) 5 percent? (iii) 0 percent?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 12E

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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