Question

Present Value Computations

Assuming that money is worth 12%, compute the present value of:

Note: Round answers to the nearest whole number, if applicable.

1. $6,000 received 15 years from today.

$1,096

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

$409,240

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

$Answer

4. The obligation to pay $1,000 at the end of each of the next 10 years.

$Answer

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

$Answer

Answer 1

Solution 1:

Present value = $6,000 * PV Factor at 12% for 15 th period

= $6,000 * 0.1827 = $1,096

Solution 2:

Present value = $2,000,000 * PV factor at 12% for 14th period

= $2,000,000 * 0.20462 = $409,240

Solution 3:

Present value = $2,000 * Cumulative PV factor at 12% for 6 periods

= $2,000 * 4.11141 = $8,223

Solution 4:

Present value = $1,000 * Cumulative PV factor at 12% for 10 periods

= $1,000 * 5.65022 = $5,650

Solution 5:

Present value = $10,000 * Cumulative PV factor at 12% for 7th to 10th period

= $10,000 * 1.53882 = $15,388