Present and Future Value Examples
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1. Calculate the present value (PV ) of a cash inflow of $500 in one year, and a cash inflow of $1,000 in 5 years, assuming a discount rate of 15%.
2. Calculate the present value (PV ) of an annuity stream of 5 annual cash flows of $1,200, with the first cash flow received in one year, assuming a discount rate of 10%.
3. What is the present value of a perpetual stream of annual cash flows of $100, with the first cash flow to be received in one year, assuming a discount rate of 8%?
4. What is the present value of a perpetual stream of annual cash flows, with the first cash flow of $100 to be received in one year, and with all subsequent cash flows growing at a rate of 3%, assuming a discount rate of 8%?
Additional Problems
A1. If you deposit $12,000 in a bank account that pays 10% interest annually, how much will be in your account after 7 years?
A2. What is the present value of a security that will pay $10,000 in 20 years at an interest rate of 8%?
A3. Find the future value of the following ordinary annuities:
a. $600 per year for 10 years at 10%
b. $300 per year for 5 years at 5%
c. $600 per year for 5 years at 0%
A4. Find the present value of the following ordinary annuities:
a. $600 per year for 10 years at 10%
b. $300 per year for 5 years at 5%
c. $600 per year for 5 years at 0%
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Solution Summary
The solution is provided in an Excel file and calculations are done using Excel built-in formulas to calculate the present and future values of a single sum, an ordinary annuity, and a perpetuity.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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