Question

1.Suppose that one year from now you receive $460. What is it worth today if the discount rate is 6% (round to 2 decimal places, do not include the $)?

2.Suppose that you will receive $4901 ten years from now. What is it worth today if the cost of capital is 2% (round to 2 decimals, do not include $)?

3.Suppose that you deposit $200 in the bank today. How much will you have in the bank ten years from now if the APR is 6% (Round your answer to 2 decimals, do not include $)?

4.Suppose that for each of the next 10 years you will receive $250. If the opportunity cost of capital is 4% how much is this stream of cash flows worth today?

5.Suppose that you deposit $550 in the bank at the end of each of the next 10 years. If the APR is 2% how much will be in your account at the end of 10 years?

Answer #1

1)

Present value = Future value / (1 + r)^{n}

Present value = 460 / (1 + 0.06)^{1}

Present value = 460 / 1.06

**Present value = 433.96**

2)

Present value = Future value / (1 + r)^{n}

Present value = 4901 / (1 + 0.02)^{10}

Present value = 4901 / 1.218994

**Present value = 4,020.53**

3)

Future value = Present value (1 + r)^{n}

Future value = 200 (1 + 0.06)^{10}

Future value = 200 * 1.790848

**Future value = 358.17**

4)

Present value = Annuity * [1 - 1 / (1 + r)^{n}] / r

Present value = 250 * [1 -1 / (1 + 0.04)^{10}] /
0.04

Present value = 250 * 8.110896

**Present value = 2,027.72**

5)

Future value = Annuity * [(1 + r)^{n} - 1] / r

Future value = 550 *[(1 + 0.02)^{10} - 1] / 0.02

Future value = 550 * 10.949721

**Future value = 6,022.35**

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