Question

Present Value Computations
Assuming that money is worth 10%, compute the present value of

Round answers to the nearest whole number.

1. $8,000 received 15 years from today.

$Answer

2. The right to inherit $1,250,000 14 years from now.

$Answer

3. The right to receive $2,000 at the end of each of the next six years.

$Answer

4. The obligation to pay $4,000 at the end of each of the next 10 years.

$Answer

5. The right to receive $6,000 at the end of the 7th, 8th, 9th, and 10th years from today.

$Answer

Answer 1

1. $8,000 received 15 years from today:

Present value = $8,000 x 0.239 = $1,912

2. The right to inherit $1,250,000 14 years from now:

Present value = $1,250,000 x 0.263 = $328,750

3. The right to receive $2,000 at the end of each of the next six years:

Present value = $2,000 x 4.355 = $8,710

4. The obligation to pay $4,000 at the end of each of the next 10 years:

Present value = $4,000 x 6.145 = $24,580

5. The right to receive $6,000 at the end of the 7th, 8th, 9th, and 10th years from today:

Present value = $6,000 x (6.145 - 4.355) = $10,740