Exhibit 5 Present Value of $1 at Compound InterestPeriods4%4%%5%5%%6%62%7%10%11%12%13%10.961540.9569400.952380.947870.943400.938970.934580.909090.900900.892860.8849620.924560.9157300.907030.898450.890000.881660.873440.826450.811620.797190.7831530.889000.8763000.863840.851610.839620.827850.816300.751310.731190.711780.6930540.854800.8385600.822700.807220.792090.777320.762900.683010.658730.635520.613320.821930.8024500.783530.765130.747260.729880.712990.620920.593450.567430.542760.790310.7679000.746220.725250.704960.685330.666340.564470.534640.506630.4803270.759920.7348300.710680.687440.665060.643510.622750.513160.481660.452350.425068.0.730690.7031900.676840.651600.627410.604230.582010.466510.433930.403880.376169.0.702590.6729000.644610.617630.591900.567350.543930.424100.390920.360610.33288100.675560.6439300.613910.585430.558390.532730.508350.385540.352180.321970.29459 Present Value of Amounts DueAssume that you are going to receive $730,000 in 10 years. The current market rate of interest is 4.5%.a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annually. Round to the nearest whole dollar.b. Why is the present value less than the $730,000 to be received in the future?The present value is less due to the compounding of interestV over the 10 years.

solution concept Present value Present value of any future cash flow is calculated by discounting the future cash flow using the appropriate discounting rate Generally the discounting rate is taken as the market rate of interest If we multiply the future value by present value factor we will get the present valueAnswer Requirement a. Amount to be received in 10 years =$730000 Rate of interest compounded annually =4.5% If we look at the table the present value factor of $1 @4.5% of 10th period =0.643930 Hence present value =730000*0.643930 =$470069 Requirement b The present value is less due to The compounding of interest over the 10 years

Business

Accounting

Present Value of Amounts Due Assume that you are going to receive $730,000 in 10 years. The current market rate of interest is 4.5%. a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annua b. Why is the present value less than the $730,000 to be received in the future? The present value is less due to the compounding of interest v over the 10 years.

Present Value of Amounts Due Assume that you are going to receive $730,000 in 10 years. The current market rate of interest is 4.5%. a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annua b. Why is the present value less than the $730,000 to be received in the future? The present value is less due to the compounding of interest v over the 10 years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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