Answer:
Present Value Years Interest Rate Future Value
$785 4 17.98% $1,521
$975 5 13.76% $1,858
$22,000 16 12.69% $148,832
$77,300 19 7.88% $326,815
Explanation:
Present value is the value of future cash flow in present time calculated by discounting the cash flows on a given rate. Present value is calculated due to the opportunity of investment available if cash flow receive today.
Working
Use following formula to calculate the interest rate
PV = FV / ( 1 + r )^n
$785 = $1,521 / ( 1 + r )^4
( 1 + r )^4 = $1,521 / $ 785
( 1 + r )^4 = 1.9376
( ( 1 + r )^4 )^1/4 = ( 1.9376 )^1/4
1 + r = 1.1798
r = 1.1798 - 1 = 0.1798 = 17.98%
PV = FV / ( 1 + r )^n
$975 = $1,858/ ( 1 + r )^5
( 1 + r )^5 = $1,858 / $ 975
( 1 + r )^5 = 1.906
( ( 1 + r )^5 )^1/5 = ( 1.906 )^1/5
1 + r = 1.1376
r = 1.1376 - 1 = 0.1376 = 13.76%
PV = FV / ( 1 + r )^n
$22,000 = $148,832 / ( 1 + r )^16
( 1 + r )^16 = $148,832 / $ 22,000
( 1 + r )^16 = 6.7651
( ( 1 + r )^16 )^1/16 = ( 6.7651 )^1/16
1 + r = 1.1269
r = 1.1269 - 1 = 0.1269 = 12.69%
PV = FV / ( 1 + r )^n
$77,300 = $326,815 / ( 1 + r )^19
( 1 + r )^19 = $326,815 / $ 77,300
( 1 + r )^19 = 4.2279
( ( 1 + r )^19 )^1/19 = ( 4.2279 )^1/19
1 + r = 1.0788
r = 1.0788 - 1 = 0.0788 = 7.88%
