   Chapter 5, Problem 9P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PRESENT AND FUTURE VALUES FOR DIFFERENT PERIOOS Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually. a. An initial 5500 compounded for 1 year at 6% b. An initial 5500 compounded for 2 years at 6% c. The present value of 5500 due in 1 year at a discount rate of 6% d. The present value of 5500 due in 2 years at a discount rate of 6%

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 and by which the future value of the annuity is determined. The calculation of the future value depends on the present value, which is calculated at a 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. This is very useful for the financial users and investors.

Explanation

Solution:

Given,

The cash flow is \$500,

The rate of interest is 6% annually.

The time period is 1 year.

Calculate the future value.

The formula to calculate the future value is,

FV=PV(1+I)N

Where,

• FV is the future value.
• PV is the present value

b.

Summary Introduction

To determine: The present value and the future value.

c.

Summary Introduction

To determine: The present value and the future value.

d.

Summary Introduction

To determine: The present value and the future value.

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