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Finance Problems: Time Value of Money (TVM), PV, PVIF, FVIF

3. You will receive $5,000 three years from now. The discount rate is 8 percent.

a. What is the value of your investment two years from now? Multiply $5,000 _ .926 (one year's discount rate at 8 percent).

b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year's discount rate at 8 percent).

c. What is the value of your investment today? Multiply your answer to part b by .926 (one year's discount rate at 8 percent).

d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n _ 3 and i _ 8 percent. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference due to rounding.

4. If you invest $9,000 today, how much will you have

a. In 2 years at 9 percent?

b. In 7 years at 12 percent

c. In 25 years at 14 percent?

d. In 25 years at 14 percent (compounded semiannually)?

5. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at a rate of 12 percent, which should you choose?

Solution Preview

Please see attached file as well.

3. You will receive $5,000 three years from now. The discount rate is 8 percent.
a. What is the value of your investment two years from now? Multiply $5,000 by .926 (one year's discount rate at 8 percent).

n =1
r = 8.00%
PVIF (1 periods, 8.% rate ) = 0.926.

Future value = $5,000
Therefore, present value = $4,630.00 = 5000 x 0.926.

Answer: The value of investment two years from now = $4,630.00.

b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year's discount rate at 8 percent).

n = 1
r = 8.00%
PVIF (1 periods, 8.% rate ) = 0.926

Future value = $4,630
Therefore, present value = $4,287.38 = 4630 x 0.926

Answer: the value of investment one years from now = $4,287.38

c. What is the value of your investment ...

Solution Summary

This solution provides calculations for the time value of money problem set in plain text and in the attached Excel file. The attached Excel file presents the solution in a more readable format and by clicking directly on the cells, you can see exactly how the answer has been derived.

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