Compute the future value in year 9 of a $3,900 deposit in year 1 and another $3,400 deposit at the end of year 5 using a 9 percent interest rate. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)What is the future value of a $970 annuity payment over four years if interest rates are 8 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)Compute the present value of a $3,200 deposit in year 1 and another $2,700 deposit at the end of year 3 if interest rates are 10 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation:

These are time value of money questions;

a:Compute the future value in year 9 of a $3,900 deposit in year 1 and another $3,400 deposit at the end of year 5 using a 9 percent interest rate.

Find FV of each and sum them up. The formula is as follows;

FV = PV(1+r)^n

Find future value (FV) of 3900 at year 9, starting from year 1; there will be 8 years of investment.

FV = 3900(1.09^8)

FV = 7770.994

Next find the future value of (FV) of 3400;

FV = 3400(1.09^4)

FV = 4799.377

Total FV = 7770.994 + 799.377 = 12,570.37

b. What is the future value of a $970 annuity payment over four years if interest rates are 8 percent?

It's important to understand that the $970 yearly annuity is a recurring payment hence the PMT.

Using a financial calculator, input the following;

Recurring payment; PMT = -970

Duration of payment = 4 years

One time present cashflow; PV = 0

Interest rate; I = 8%

then compute the future value; CPT FV = 4370.93

c.Compute the present value of a $3,200 deposit in year 1 and another $2,700 deposit at the end of year 3 if interest rates are 10 percent.

This is the opposite of future value. PV is calculated using discounting process. Therefore, find the PV of each CF and sum them up. The formula is as follows;

PV = FV/ (1+r)^n

PV of 3200;

PV = 3200/(1.10^1)

PV = 2909.0909

Next, calculate present value of 2700;

PV of 2700;

PV = 2700/(1.10^3)

PV = 2028.5500

Now sum up the two PVs;

Total PV = 2909.0909 + 2028.5500 = 4937.64

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