Question

Present Value Computations

Assuming that money is worth 10%, compute the present value of:

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

$Answer

2. The right to inherit $2,000,000 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 $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 10% for 15th period

= $6,000 * 0.239392 = $1,436

Solution 2:

Present value = $2,000,000 * PV Factor at 10% for 14th period

= $2,000,000 * 0.263331 = $526,663

Solution 3:

Present value = $2,000 * Cumulative PV factor at 10% for 6 periods

= $2,000 * 4.355261

= $8,711

Solution 4:

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

= $1,000 * 6.144567 = $6,145

Solution 5:

Present value = $10,000 * Cumulative PV Factor at 10% for 7th to 10th periods

= $10,000 * 1.789306 = $17,893