• 100% Satisfaction Guarantee
Dave CPA, Accountant
Category: Finance
Satisfied Customers: 840
Experience:  I'm a CPA with over 10 years of experience
15068660
Dave CPA is online now

# I need help understand future/present value and amoritization?! --I

### Resolved Question:

I need help understand future/present value and amoritization?!

--I don't quite understand how to know which index you use for solving different problems
Submitted: 3 years ago.
Category: Finance
Expert:  Dave CPA replied 3 years ago.

Dave CPA :

Hello,

Dave CPA :

Typically for present value you need to use the rate for each year you are discounting.

Dave CPA :

http://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf

Dave CPA :

Here is the rate table.

Dave CPA :

Hello I see you are in the chat

Customer:

Hi, yes I am. I am having trouble understand future/present value. I know there are different tables, but I am unsure as to know when to use which.

Dave CPA :

Well for present value you would use the one I just sent.

Dave CPA :

Does that make sense?

Customer:

1. Assume that you need to calculate either a present or future value. Which interest rate column and

number of periods do you use when working with the following rates and years?

(a) 8% compounded quarterly for 4 years i = ______% n = ______

(b) 12% compounded annually for 5 years i = ______% n = ______

(c) 6% compounded semiannually for 3 years i = ______% n = ______

(d) 12% compounded monthly for 2 year i = ______% n = ______

1. Sam Riggs makes a \$4,000 deposit in a savings account that earns 4% compounded annually. How

much will Sam have in the account after 5 years, assuming he makes no additional deposits?

Balance of account = \$_______________

1. Bob Thompson expects to invest \$10,000 at the end of each year into an account that earns 5%

compounded annually. How much will Bob have in the account at the end of 6 years?

Balance of account = \$_______________

1. Ann Summers wants to have \$20,000 available for graduate school tuition when she graduates from SCSU four years from now. How much must Ann deposit today in an investment account that earns 6%

compounded semiannually in order to meet her goal?

Current deposit = \$_______________

1. How much can XXXXX XXXXX borrow if she agrees to pay the loan in three annual payments of \$10,000 at the end of each year? These payments include interest at 7%, and the first payment is made one

year after Mary borrows the money.

Amount borrowed = \$_______________

1. XXXXX XXXXX is offered the possibility of investing \$2,750 today and in return to receive \$10,000 after

15 years. What is the annual rate of interest for this investment?

i = ______%

1. Megan Brooks is offered the possibility of investing \$6,650 today at 6% interest per year in a desire to

accumulate \$10,000. How many years must Brink wait to accumulate \$10,000?

n = ______ years

1. You just purchased a lottery ticket and can imagine winning the big jackpot of \$96 million. You have the choice of a lump sum payout or annual payments of \$4.8 million at the end of each year for the next 20 years. The interest rate used to determine the lump sum payout is 5%. What is the amount of

the lump sum payment?

Lump Sum = \$_______________

Customer:

Those are sum examples, I'll look at the chart

Customer:

I do know that you look at the year and percent to find the number to multiply by. I guess my question is when reading these problems how to interpret whether it is present or future? In order to know which table to get the numbers from

Dave CPA :

So for the Sam Riggs problem you want to know the future value because that is in the future.

Dave CPA :

Same with Bob Thompson

Dave CPA :

Ann Summer is present value as you know the amount in the future

Dave CPA :

XXXXX XXXXX is present value

Dave CPA :

Are you getting the idea?

Customer:

I think so. Now when it comes to calculations- how do you decide when its an annuity?

Dave CPA :

An annuity is a fixed payment at the same amount.

Dave CPA :

https://www.box.com/s/ou0lmj1ft5ddv7rptyax

Dave CPA :

If you have excel here is a sheet that has the present value and future value formulas.

Dave CPA :

as an example

Customer:

I do have excel

Dave CPA :

Take a look at the formulas

Customer:

Okay, I haven't used excel a whole lot, but I think I kind of understand what you are doing.

Dave CPA :

So for Bob T you should come out to \$4,867

Dave CPA :

Sorry I meant Sam Riggs

Dave CPA :

For Bob T you should have \$13,401

Dave CPA :

Are you getting the idea?

Customer:

So for Bob T would it be future value and annuity?

Dave CPA :

Yes

Dave CPA :

Do you have any other questions on which one to use?

Customer:

When calculating annuity and lump sum is the only real difference going to be which appendix you are looking at?

Dave CPA :

Yes

Customer:

Okay, I think I have a better understanding. I guess the only thing is with some of the wording on the different questions I feel like can be tricky when trying to distinguish whether it is future or present. Any tips on that? I obviously know if they say at the end of x amount of years- thats future.

Dave CPA :

Think of it this way.

Dave CPA :

If they say you will have \$20,000 in ten years you need to think back to present value

Dave CPA :

If they say you have \$20,000 right now and what will it be in the future...You need to think future value

Dave CPA :

When you read the problem look at where the money is. Is it in the future or present and then work out the opposite.

Customer:

Okay so that's problem. I feel like I am looking too much into the problems. When I read you will have "\$20,000 in ten years" that makes me think future, because I don't currently have it.

Dave CPA :

That is correct and you need to figure the present value.

Customer:

For the appendix that you found- they all are going to be the same I'd assume? Meaning, where you found this- should appear in other accounting textbooks/sites?

Dave CPA :

Yes that is standard

Dave CPA :

do you need anything else?

Customer:

I think that should be all. I am going to just keep working away at practice problems. Thank you.

Dave CPA :

Please provide a positive rating. I really enjoyed helping you tonight. Regards Dave

Dave CPA, Accountant
Category: Finance
Satisfied Customers: 840
Experience: I'm a CPA with over 10 years of experience

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

### What Customers are Saying:

• I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Previous | Next >
• I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
• I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
• Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
• Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
• Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
• This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
• Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA

### Meet The Experts:

#### Satisfied Customers:

2489
Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
< Last | Next >

#### Satisfied Customers:

2489
Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

### Megan C

#### Satisfied Customers:

2210
Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

### Manal Elkhoshkhany

#### Satisfied Customers:

1905
More than 5000 online tutoring sessions.

### JKCPA

#### Satisfied Customers:

843
Bachelors degree and CPA with Accounting experience.

### Eric

#### Satisfied Customers:

559
Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

### R. Klein, EA

#### Satisfied Customers:

480
TurboTax Expert. QuickBooks Certified Pro Advisor

332