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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

PRESENT AND FUTURE VALUES FOR DIFFERENT PERIODS Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually.

  1. a. An initial $600 compounded for 1 year at 6%
  2. b. An initial $600 compounded for 2 years at 6%
  3. c. The present value of $600 due in 1 year at a discount rate of 6%
  4. d. The present value of $600 due in 2 years at a discount rate of 6%

a.

Summary Introduction

To determine: The present values and the future values.

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 $600,

The rate of interest is 6% annually.

The time period is 1 year.

The formula to calculate the future value is:

FV=PV(1+I)N

Where,

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

b.

Summary Introduction

To determine: The present values and the future values.

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 values and the future values.

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 values and the future values.

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.

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