Personal Finance 1st Edition by Jack R. Kapoor

Exercise 20

1. How can you use future value and present value computations to measure the opportunity cost of a financial decision?

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2. Use the time value of money tables in Exhibit 1–8 to calculate the following:

a. The future value of $100 at 7 percent in 10 years.

b. The future value of $100 a year for six years earning 6 percent.

c. The present value of $500 received in eight years with an interest rate of 8 percent.

Action Application What is the relationship between current interest rates and financial opportunity costs? Using time value of money calculations, state one or more goals in terms of an annual savings amount and the future value of this savings objective.

Step 1 of 4

1.

We have to use future value and present value computations to compare the value of new one with opportunity cost of a financial decision.