Chapter 5, Problem 10P

BuyFind*arrow_forward*

15th Edition

Eugene F. Brigham + 1 other

ISBN: 9781337395250

Textbook Problem

**PRESENT AND FUTURE VALUES FOR DIFFERENT INTEREST RATES** Find the following values. Compounding/discounting occurs annually.

- a. An initial $200 compounded for 10 years at 4%
- b. An initial $200 compounded for 10 years at 8%
- c. The present value of $200 due in 10 years at 4%
- d. The present value of $1,870 due in 10 years at 8% and at 4%
- e. Define
*present value*and illustrate it using a time line with data from part d. How are present values affected by interest rates?

**a.**

Summary Introduction

**To determine:** The present value and the future value.

**Present Value:**

The present value refers to that value which is the current value computed for future amounts based on the discounted rate.

**Future Value:**

The future value means that value of the investment which will be realized in the future. With the help of the calculation of future value, an analysis of the amount to be invested can be made.

Explanation

Given,

The cash flow is $200,

The rate of interest is 4% annually.

The time period is 10 year.

The formula to calculate the future value is:

Where,

- FV is the future value,
- PV is the present value,
- I is the interest rate and
- N is the time period.

Substitute $200 for PV, 4% for I and 10 for N in the above formula

**b.**

Summary Introduction

**To determine:** The present value and the future value.

**Present Value:**

The present value refers to that value which is the current value computed for future amounts based on the discounted rate.

**Future Value:**

The future value means that value of the investment which will be realized in the future. With the help of the calculation of future value, an analysis of the amount to be invested can be made.

**c.**

Summary Introduction

**To determine:** The present value and the future value.

**Present Value:**

The present value refers to that value which is the current value computed for future amounts based on the discounted rate.

**Future Value:**

The future value means that value of the investment which will be realized in the future. With the help of the calculation of future value, an analysis of the amount to be invested can be made.

**d.**

Summary Introduction

**To determine:** The present value and the future value.

**Present Value:**

**Future Value:**

**e.**

Summary Introduction

**To define:** The present value with a time line and the effect of interest rates on present value.

Ch-5 P-3PCh-5 P-4PCh-5 P-5PCh-5 P-6PCh-5 P-7PCh-5 P-8PCh-5 P-9PCh-5 P-10PCh-5 P-11PCh-5 P-12PCh-5 P-13PCh-5 P-14PCh-5 P-15PCh-5 P-16PCh-5 P-17PCh-5 P-18PCh-5 P-19PCh-5 P-20PCh-5 P-21PCh-5 P-22PCh-5 P-23PCh-5 P-24PCh-5 P-25PCh-5 P-26PCh-5 P-27PCh-5 P-28PCh-5 P-29PCh-5 P-30PCh-5 P-31PCh-5 P-32PCh-5 P-33PCh-5 P-34PCh-5 P-35PCh-5 P-36PCh-5 P-37PCh-5 P-38PCh-5 P-39PCh-5 P-40PCh-5 P-41SPCh-5 P-42IC

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

Foundations of Business (MindTap Course List)

Financial & Managerial Accounting

Principles of Economics (MindTap Course List)

Brief Principles of Macroeconomics (MindTap Course List)

Probability and Statistics for Engineering and the Sciences

Accounting Information Systems

Cornerstones of Financial Accounting

STATISTICS F/BUSINESS+ECONOMICS-TEXT

Essentials of Business Communication (MindTap Course List)

ECON: MICRO4 (New, Engaging Titles from 4LTR Press)

Corporate Financial Accounting

Principles of Macroeconomics (MindTap Course List)

Principles of Microeconomics (MindTap Course List)

Financial And Managerial Accounting

College Accounting, Chapters 1-27

Essentials of Economics (MindTap Course List)

Management, Loose-Leaf Version

Financial Accounting

Contemporary Marketing

College Accounting (Book Only): A Career Approach

MKTG 12:STUDENT ED.-TEXT

Intermediate Accounting: Reporting And Analysis

Managerial Accounting: The Cornerstone of Business Decision-Making

Accounting Information Systems

Financial & Managerial Accounting

Financial Accounting

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Fundamentals of Financial Management (MindTap Course List)

Pkg Acc Infor Systems MS VISIO CD

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

College Accounting (Book Only): A Career Approach

Statistics for Business & Economics, Revised (MindTap Course List)

Principles of Macroeconomics (MindTap Course List)

Accounting (Text Only)

Exploring Economics

Micro Economics For Today

Economics (MindTap Course List)

Survey of Accounting (Accounting I)

Practical Management Science

Macroeconomics

Cornerstones of Cost Management (Cornerstones Series)

Corporate Financial Accounting

PAYROLL ACCT.,2019 ED.(LL)-TEXT

Purchasing and Supply Chain Management