Question

Find the following values using the equation and then a financial calculator. Compounding/discounting occurs annually. A. An initial$ 500 for 1yr @6%
b. An initial $500 compounded for 2yrs @6%
C. The present value of $500 due in 1yr @ a discount rate of 6%
D. The present value of$ 500 due in 2yrs @ a discount rate of 6%

Answer 1

$$\text{Present Value} = \frac{c}{(1+i)(1+i)}, \text{ where } c \text{ denotes money amount; } i \text{ denotes discount rate.}$$

A. 500\$ \times 1.06 \quad \longrightarrow \quad 530\.

B. 500\$ \times (1 + 0.6)^2 \quad \longrightarrow \quad 561.8\.

C. 471.7\$ \quad \leftarrow \quad \frac{500}{1 + 0.6} \quad \leftarrow \quad 500\.

D. 444.9\$ \quad \leftarrow \quad \frac{500}{(1 + 0.6)^2} \quad \leftarrow \quad 500\.