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Present Value and Future value

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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%

May 3, 2018

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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.

May 3, 2018