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Homework Week 5

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P6. Determine the present values if $5,000 is received in the future (i.e., at the end of each indicated time period) in each of the following situations: a. 5 percent for ten years = PV= 5000/(1+0.05)^10 = 5000/1.6288 = FV = $3,069.7446 b. 7 percent for seven years = PV= 5000/(1+0.07)^7 = 5000/1.6057 = FV = $3,113.906 c. 9 percent for four years = PV = 5000/(1+0.09)^4 = 5000/1.4115 = FV = $3,542.3308 P9. Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year. Used formula; FVa = PMT {(1+r)^n -1/r} First year 5000{(1+0.10)^1 -1 /0.10} = 5000{1.10-1/.10} = 5000 (.10/.10) = $5,000 Second year; 5000{(1+0.10)^2 -1 /0.10} =5000{(1.10)^2 -1 /0.10}= 5000{1.21-1 /0.10}= 5000{.21/.10}= 5000(2.10) = FV= $10,500 Third year; 5000{(1+0.10)^3 -1 /0.10} = 5000{(1.10)^3 -1 /0.10} = 5000{1.331-1 /0.10}= 5000{.331 /0.10}= 5000{3.31} =FV= $16,550 Fourth year; 5000{(1+0.10)^4 -1 /0.10} = 5000{(1.10)^4 -1 /0.10} = 5000{1.4641-1/0.10} =5000{.4641 /0.10} = 5000{4.641} = FV = $23,205 Fifth year; 5000{(1+0.10)^5 -1 /0.10} = 5000{(1.10)^5 -1 /0.10} = 5000{1 ...
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