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