Find the following values (compunding/discounting occurs annually): A. An initial $500 compounded for 1 year @ 6% B. An initial $500 compounded for 2 years @ 6% C. The present value of $500 due in 1 year at a discount rate of 6% D. The present value of $500 due in 2 years at a discount rate of 6%

Find the following values (compunding/discounting occurs annually): A. An initial $500 compounded for 1 year @ 6% B. An initial $500 compounded for 2 years @ 6% C. The present value of $500 due in 1 year at a discount rate of 6% D. The present value of $500 due in 2 years at a discount rate of 6%

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA3: Time Value Of Money

Section: Chapter Questions

Problem 11E

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Find the following values (compunding/discounting occurs annually):

A. An initial $500 compounded for 1 year @ 6%

B. An initial $500 compounded for 2 years @ 6%

C. The present value of $500 due in 1 year at a discount rate of 6%

D. The present value of $500 due in 2 years at a discount rate of 6%

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