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Present Values
Krista Kellman has an opportunity to purchase a government security that will pay $200,000 in
5 years.
Required:
Note: Round answers to two decimal places.
1. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded annually.
2. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 10% compounded annually.
3. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded semiannually.
(a)
Introduction:
Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.
To calculate:
The amount to be invested when 6% interest rate is compounded annually.
Cash Flow (f) = $200,000
Compounded Annually,
Interest Rate = 6%
No. of periods = 5
PV = Present Value
PV = ...
(b)
Introduction:
Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.
To calculate:
The amount to be invested when 10% interest rate is compounded annually.
(c)
Introduction:
Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.
To calculate:
The amount to be invested when 6% interest rate is compounded semiannually.
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