EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER, 2024
CFIN 3 Chapter 4 Questions and Answers
– Updated 2024
"If you invest $500 today in an account that pays 6 percent interest compounded annually, how
much will be in your account
after two years?" - Answer✔✔-\n\n
Using a financial calculator, enter N = 2, I/Y= 6, and PV = -500; compute FV = 561.80"
"What is the present value of an investment that promises to pay you $1,000 in five years if you
can earn 6 percent interest
compounded annually?" - Answer✔✔-\n\n "
Using a financial calculator, enter N = 5, I/Y= 6, and FV = 1,000; compute PV = -747.26"
Compute the present value of $1,552.90 due in 10 years at (a) a 12 percent discount rate and
(b) a 6 percent rate. - Answer✔✔-Using a financial calculator, enter N = 10, I/Y= 6, and FV =
1,552.90; compute PV = -867.13
The present value represents the amount that needs to be invested today at the opportunity
cost rate to generate the future amount. In essence, we take the interest out of the future
value—that is, discount—to determine the current, or present, value. For this problem, then, if
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, EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER, 2024
$867.13 is invested today at 6 percent compounded annually, it will grow to $1,552.90 in 10
years.
"To the closest year, how long will it take a $200 investment to double if it earns 7 percent
interest? How long will it take if the
investment earns 18 percent?" - Answer✔✔-\n\n "(1)
PV = -200 400
Using a financial calculator, enter I/Y= 7, PV = -200, PMT = 0, and FV = 400; compute N = 10.24 ≈
10 years
If I/Y= 18%, N = 4.19 ≈ 4 years"
Which amount is worth more at 14 percent: $1,000 in hand today or $2,000 due in six years? -
Answer✔✔-Using a calculator, enter N = 6, I/Y= 14, PMT = 0, and PV = -1,000; compute FV =
2,194.97
PV = 1,000(1.14)6 = 1,000(2.19497) = 2,194.97
$1,000 today is worth more. The future value of $1,000 at 14 percent over six years is
$2,194.97, which is greater than the future $2,000.00.
Alternatively, using a calculator, enter N = 6, I/Y= 14, PMT = 0, and FV = 2,000; compute PV = -
911.17
PV = 2,000(1/1.14)6 = 2,000(0.455587) = $911.17
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