1. If a physician deposits $24,000 today into a mutual fund that is expected to grow at an annual rate of 8%, what will be the value of this investment:
a. 3 years from now
b. 6 years from now
c. 9 years from now
d. 12 years from now
2. The Chief Financial Officer of a hospital needs to determine the present value of $120,000 investment received at the end of year 5. What is the present value if the discount rate is:
a. 3%
b. 6%
c. 9%
d. 12%
1)
This is the formula you would use to figure that out:
FV = PV [1 + R]^N
FV = 24,000 [1 + 0.08]^3
FV = 24,000 [1.08]^3
FV = 24,000 x 1.259712
FV =$30,233.09 - This is the value of investment in 3 years.
Use exact same formula above to calculate the rest of them.
=$38,084.98 - This is the value after 6 years.
=$47,976.11 - This is the value after 9 years.
=$60,436.08 - This is the value after 12 years.
2)
This is the formula you would use to calculate that:
PV = FV / [1 + R]^N
PV =120,000 / [1 + 0.03]^5
PV =120,000 / [1.03]^5
PV =120,000 / 1.1592740743
PV =$103,513.05 - This is the PV of $120,000 @ 3% over 5 years.
Use exact same formula above to calculate the rest of them:
=$89,670.98 - This is the PV @ 6% over 5 years.
=$77,991.77 - This is the PV @ 9% over 5 years.
=$68,091.22 - This is the PV @12% over 5 years.
