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AppB – Applying Present and Future Values
Appendix B
Applying Present and Future Values
Student Learning Objectives and Related Assignment Materials
Student Learning Objectives
Quick Studies
Exercises
Conceptual objectives:
C1. Describe the earning of interest
and the concepts of present and
future values.
B-1
B-14, B-19
Procedural objectives:
P1. Apply present value concepts
to a single amount by using
interest tables.
B-2, B-3, B-4
B-8, B-9, B-10, B-11, B-12, B-19
P2. Apply future value concepts to
a single amount by using
interest tables.
B-5
B-1, B-2, B-12, B-15, B-17, B-18, B-19
P3. Apply present value concepts
to an annuity by using interest
tables.
B-6
B-3, B-4, B-7, B-8, B-10, B-12, B-13, B-14,
B-19
P4. Apply future value concepts to
an annuity by using interest
tables.
B-7
B-5, B-6, B-12, B-16, B-17, B-19
* Assignment materials that can be completed by students using:
AppB – Applying Present and Future Values
Appendix Outline
I. Present Value and Future Value Concepts
A. As time passes, certain assets and liabilities that are held grow.
B. Growth is due to interest.
C. Present and future value computations are a way for us to measure
or estimate the interest component of holding assets or liabilities
over time.
II. Present Value of a Single Amount
A. The present value of a single amount received at a future date is
the amount that can be invested now at the specified interest rate
to yield that future value.
B. A table of present values for a single amount shows the present
values of $1 for a variety of interest rates and a variety of time
periods that will pass before the $1 is received.
II. Future Value of a Single Amount
A. The future value of a single amount invested at a specified rate of
interest is the amount that would accumulate by the future date.
B. A table of future values of a single amount shows the future values
of $1 invested now at a variety of interest rates for a variety of
time periods.
III. Present Value of an Annuity
A. An ordinary annuity is defined as equal end-of-period payments at
equal intervals.
B. The present value of an annuity is the amount that can be invested
now at the specified interest rate to yield that series of equal
IV. Future Value of an Annuity
A. The future value of an annuity invested at a specified rate of
interest is the amount that would accumulate by the date of the
final payment.
B. A table of future values for an annuity shows the future values of
annuities where the amount of each payment is $1 for different
Notes
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. APP B-3
Sarah Blue has the three options:
1. Receiving $1,000 per year for the next 10 years,
2. Receiving $6,000 in cash immediately, or
3. Receiving $10,000 in cash after 5 years.
Required:
Assuming that the current interest rate is 10%, and that Blue wants the
option that yields the highest present value, which option should she
choose?
AppB – Applying Present and Future Values
Solution: Appendix B – Alternate Demonstration Problem #1
1. Receiving $1,000 per year for the next 10 years:
The present value of $1,000 received annually for 10 years discounted
at 10% equals $6,145.
2. Receiving $6,000 in cash immediately:
