5-Minute Work-out for Compounding and Discounting

Prepared by Pamela Peterson Drake

Compounding


          Given:                                           Solve for:              

Problem   Present      Number of         Rate per period   Future value            
          value        periods                                                     

1         $2,500       5                 4%                                        

2         $150,000     10                3%                                        

3         $10          15                4%                                        

4         $250         10                5%                                        

5         $1,500       3                 10%                                       



Discounting


          Given:                                           Solve for:              

Problem   Future       Number of         Rate per period   Present value           
          value        periods                                                     

1         $1,000       5                 3%                                        

2         $100,000     5                 4%                                        

3         $1,000,000   20                5%                                        

4         $20          5                 4%                                        

5         $1,000,000   10                10%                                       



Solutions to 5-minute Work-out forCompounding and Discounting

Compounding


          Given:                                             Solve for:            

Problem   Present           Number of        Rate per        Future value          
          value             periods          period                                

1         $2,500            5                4%              $3,041.63             

2         $150,000          10               3%              $201,587.46           

3         $10               15               4%              $18.01                

4         $250              10               5%              $407.22               

5         $1,500            3                10%             $1,996.50             



Discounting


               Given:                                          Solve for:          

Problem        Future           Number of       Rate per       Present value       
               value            periods         period                             

1              $1,000           5               3%             $862.61             

2              $100,000         5               4%             $82,192.71          

3              $1,000,000       20              5%             $376,889.48         

4              $20              5               4%             $16.44              

5              $1,000,000       10              10%            $385,543.29