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Find the following values for the lump sum assuming annual compounding:The future value of $500 invested at 8 percent for one year.Future Value=$500 * (1+0.08) ^1Future Value=$540The future value of $500 invested at 8 percent for five years.Future Value=$500 * (1+0.08) ^5Future Value=$734.66The present value of $500 to be received in one year when the opportunity cost rate is 8 percent.Present Value=$500/(1+0.08) ^1Present Value =$462.96The present value of $500 to be received in five years when the opportunity cost rate is 8 percent.Present Value=$500/(1+0.08) ^5Present Value =$340.29

Respuesta :

TomShelby

Answer:

a) 540

b) 734.66

c) 462.96

d) 340.29

Explanation:

Here is the formula and explanation for each case:

a) FV of 500 invested at 8% during a year:

[tex]Principal \: (1+ r)^{time} = Amount[/tex]

Principal 500.00

time 1.00

rate 0.08000

[tex]500 \: (1+ 0.08)^{1} = Amount[/tex]

Amount 540.00

b) FV of 500 invested at 8% during a five years:

[tex]Principal \: (1+ r)^{time} = Amount[/tex]

Principal 500.00

time 5.00

rate 0.08000

[tex]500 \: (1+ 0.08)^{5} = Amount[/tex]

Amount 734.66

c) PV of 500 at 8% discount rate within a year

[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]  

Maturity  500.00

time  1.00

rate  0.08000

[tex]\frac{500}{(1 + 0.08)^{1} } = PV[/tex]  

PV   462.9630

d) PV of 500 at 8% discount rate in 5 years

[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]  

Maturity  500.00

time  5.00

rate  0.08000

[tex]\frac{500}{(1 + 0.08)^{5} } = PV[/tex]  

PV   340.2916

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