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ECO202: Macroeconomics and Accounting Research Assignment (Essay Sample)

Instructions:

NOTE: This assignment is in two parts, one is quantitative problem, the other a short paper. You need to turn in both Part I and Part II to receive full credit for this assignment.

Part I: This part of the assignments tests your ability to calculate present value.

A. Suppose your bank account will be worth $15,000.00 in one year. The interest rate (discount rate) that the bank pays is 7%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 4%?

B. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $6,500.00 in one year. Account B will be worth $12,600.00 in two years. Both accounts earn 6% interest. What is the present value of each of these accounts?

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Content:


Present Value
Name
Trident University
ECO202: Macroeconomics
Date

Part I: This part of the assignments tests your ability to calculate present value.
Suppose your bank account will be worth $15,000.00 in one year. The interest rate (discount rate) that the bank pays is 7%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 4%?
When the future value is known it is possible to determine the present value using the discount rate, and this is relevant in the concept of time of value (Moneychimp)
PV= FV/ (1/+i)n =A /(1+r) t or FV(A) *PVIF (Present value interest factor)
Where t is 1 year and A is future value
When the interests is interest rate is 7% the PV is $15,000.00*0.9346= $14,019.00
When the interest rate is 4% the PV =$15,000.00* 0.9615=$14,422.50
B. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $6,500.00 in one year. Account B will be worth $12,600.00 in two years. Both accounts earn 6% interest. What is the present value of each of these accounts?
Account AAccount BAmount$6,500.00 $12,600.00 Time1 year2 YearsInterest rate6%6%
Account A, PV= A / (1+r) t
PV=$6,500 *(1/1.06)1 = $6500/1.06= $6132.08
Account B, PV= A/ (1+r) t
PV=$12,600/ (1.06)2= $12,600/ 1.1236= $11,213.96
C.

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