time value of money

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Economics

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Quickie Assignment # 1 • Here are six problems that are either Present Value Problems or Future Value Problems. Aula de Nosil Code ge Orden Time Value of Money Billy wants to buy a car in 4 years. He will need a down payment of $5000. He can get an interest rate of 6% at his bank. How much money will he have to deposit today in order to have $5000 in 4 years? Time Value of Money Jack and Jill have $39,000 in the bank earning 6%. How much will they have in 5 years to use for the down payment? Time Value of Money Billy wants to buy a house in seven years. He will need $20,000 for a down payment. How much money does he need to deposit today at an interest rate of 5% in order to have the money he will need Time Value of Money • Frank and Polly want to buy an house, They have $24,000 in the bank earning 5%. How much will they have in 5 years to use for the down payment?
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Explanation & Answer

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To answer the problems we need to use only two formulas
Future Value

Present Value

𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒 = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 ∗ (1 + 𝑟𝑎𝑡𝑒)𝑛𝑝𝑒𝑟

𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 =

𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒
(1 + 𝑟𝑎𝑡𝑒)𝑛𝑝𝑒𝑟

With the formulas you only need to replace the variables with the values and make the
calculations


1. Billy wants to buy a car in 4 years. He will need a down payment of $5,000. He can
get an interest of 6% at his bank. How much money will he have to...


Anonymous
I was having a hard time with this subject, and this was a great help.

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