Steps for Solving A TVM Problem. Carefully read the entire problem, and determine what you are being asked to find. Write down all of the variables in the problem and label them. Does the interest rate’s compounding frequency match the payment period? Draw a Timeline.
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(Chapter 5 Self-Test Problem 1) Assume you deposit $10,000 today in an account that pays 6 percent interest. How much will you have in five years?
(Chapter 6 Problem 52) A 5-year annuity of ten $7,000 semiannual payments will begin 8 years from now, with the first payment coming 8.5 years from now. If the discount rate is 10 percent compounded monthly, what is the value of this annuity five years from now? What is the value three years from now? What is the current value of the annuity?