1. Calculating Future Values. For each of the following, compute the future value:
Present Value Years Interest Rate Future Value
$ 3, 150 6 18%
8, 453 19 6
89, 305 13 11
227, 382 29 5
2. Calculating Interest Rates. Solve for the unknown interest rate in each of the following:
Present Value Years Interest Rate Future Value
$ 715 6 $ 1,381
905 7 1,718
15,000 18 141, 832
70,300 21 312, 815
- Calculating present Values. Imprudential, Inc; has an unfunded pension liability of $750 million that must be paid in 25 years. To assess the value of the firm's stock, financial analysts want to discount the liability back to the present. If the relevant discount rate is 8 percent, what is the present value of this liability?
- Calculating the Number of Periods. You expect to receive $25,000 at graduation in two years. You plan on investing it at 9 percent until you have $160,000. How long will you wait from now?
- Calculating Annuity Present Values. An investment offers $8,500 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 9 percent, what is the value of the investment? What would the value be if the payments occurred over for 40 years? For 75 years? Forever?
- Calculating Annuity Values. You want to have $25,000 in your savings account eight years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 4.75 percent interest, what amount must you deposit each year?
3. Calculating EAR. First National Bank charges 10.1 percent compounded monthly on its business loans. First United Bank charges 10.3 percent compounded semiannually. As a potential borrower, which bank would you go to for a loan?