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LESSON 3 – PRESENT VALUE

LESSON 3 – PRESENT VALUE. WARM-UP : Shaheer invested $3000 in a Canadian Savings Bond with an interest rate of 4.5% compounded annually. a) How much is his investment worth after 7 years?. b) How much interest did he earn in total?.

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LESSON 3 – PRESENT VALUE

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  1. LESSON 3 – PRESENT VALUE WARM-UP: Shaheer invested $3000 in a Canadian Savings Bond with an interest rate of 4.5% compounded annually. a) How much is his investment worth after 7 years? b) How much interest did he earn in total? 2. In 9 years, Sabrina’s investment was worth $7600. How much money did she invest originally at 6% per annum compounded semi-annually?

  2. Present Value • PRESENT VALUE • The amount of money invested today to produce a desired amount in the future • I.e. The Principal Amount • Using the Compound Interest Formula, we can derive a formula to determine Present Value:

  3. Present Value EXAMPLE 1:In 20 years, Mrs. Noguchi would like to purchase a pink Ferrari, whose value is expected to be $250 000, for Jenna. How much money should she invest today at 8% p/a if it is compounded: a) annually b) semi-annually

  4. Present Value EXAMPLE 1:In 20 years, Mrs. Noguchi would like to purchase a pink Ferrari, whose value is expected to be $250 000, for Jenna. How much money should she invest today at 8% p/a if it is compounded: c) quarterly d) monthly

  5. Present Value EXAMPLE 2: Ms. Mufasa would like to visit the Pride Lands in Africa over the summer holiday, which is 7 months away. The trip will cost $1600. How much money should Ms. Mufasa invest today at 4% p/a, compounded monthly, in order to have enough for her trip?

  6. Present Value EXAMPLE 3: Candy has won a lottery and wishes to set up education funds for her two children, Mike and Ike. How much should she invest today at 10% p/a, compounded semi-annually in order to have $10 000 each for Mike in 7 years and Ike in 12 years?

  7. Present Value EXAMPLE 4: Aunt Jemima has given her nephew, Leggo, $12 000 to pay for his university education. Leggo expects to start university four years from now, when he estimates the cost will total $17 000. At what interest rate, compounded quarterly does he need to invest the money? • First Name:Leggo • Middle Name: My • Last Name: Eggo

  8. HomeFUN!!! • TEXTBOOK! • Pages 523 – 524 • # 5 – 9, 12, 13, 15, 16

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