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FIN 370 WEEK 2
“FIN 370 WEEK 2.”
Name:
Course code:
Institution of affiliation:
Date of submission:
1
FIN 370 WEEK 2
3. Calculating Present Values [LO2] For each of the following, compute the present
value:
SOLUTION.
Present value refers to the current value of the money which is payable at some specified
future time.
It can be calculated by the formula
PV= FV[1/(1+i)n
Where:
PV is the present value
FV is the future value
I is interest rate
N is the number of years.
For:
i.
FV given as $15,451
i= 9%
n= 13yrs
2
FIN 370 WEEK 2
PV
= $15,451x[1/(1+0.09)13
= $15,451 x 1/3.066
= $5,039.47
Hence here the PV = $5,039.47
ii.
For;
FV given as $51,557
i is 7%
n is 4 years
PV
= 51, 557 x [1/ (1+0.07)4]
= 51,557x [1/1.311]
= $39,326.47
Hence PV is calculated as $39,326.47
iii.
For;
FV is given as $886,073
i is 24%
n is 29 years
PV
= 886,073 x [1/ (1+0.24)29]
= 886,073 x [1/511.95}
= $1.73
Hence the PV is calculated as $1.73
iv.
For;
FV is given as $550,164
3
FIN 370 WEEK 2
i is 35%
n is 40 years
= 550,164 x [1/(1+0.35)40]
PV
=550,164 x [1/163,437.13]
=$3.37
Hence PV is given as calculated as $3.37
4. Calculating Interest Rates [LO3] Solve for the unknown interest rate in each of the
following:
SOLUTION.
Interest rate is calculated using the formula:
Interest rate= (future value/present value) 1/years – 1
i.
given;
PV = $181
Years = 4 years
FV = $ 297
4
FIN 370 WEEK 2
Interest rate (i)
= (297/181)1/4 -1
= (1.6409)1/4 – 1
= 1.1318 – 1...