Importance of TVM concepts: Calculate future value, present
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1) Why the concept of present value is so important for corporate finance and is often the very first topic taught in any finance class.
2) Calculate the future value of the following:
a. $15,000 if invested for five years at a 7% interest rate
b. $19,500 if invested for three years at a 4% interest rate
c. $29,900 if invested for seven years at an 2% interest rate
d. $14,200 if invested for ten years with a 0.9% interest rate
3) Calculate the present value of the following:
a. $17,500 to be received three years from now with a 4% Interest rate
b. $41,000 to be received five years from now with a 5% interest rate
c. $120,000 to received two years from now with a 12% interest rate
d. $790,000 to be received eight years from now with a 1% interest rate.
4) Suppose you are to receive a stream of annual payments (also called an "annuity") of $180,000 every year for three years starting this year. The interest rate is 4%. What is the present value of these three payments?
5) Suppose you are to receive a payment of $120,000 every year for three years. You are depositing these payments in a bank account that pays 2% interest. Given these three payments and this interest rate, how much will be in your bank account in three years?
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Importance of TVM concepts: Calculate future value, present value problems
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1. The concept of present value is important, from a corporate point of view, because "time is money". A dollar today is worth more than a dollar tomorrow, as time generally represents ...
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