Time value of money
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Present Values. Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
r = 8 percent. t = 10 years.
r = 8 percent. t = 20 years.
r = 4 percent. t = 10 years.
r = 4 percent. t = 20 years
Future Values. Compute the future value of a $100 cash flow for the same combinations of rates and times a in problem 1
Calculating Interest Rate. Find the interest rate implied by the following combinations of present and future values:
Present Value Years Future Value
$400 11 $684
$183 4 $249
$300 7 $300
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Solution Summary
Computations done "by hand" (not Excel or financial calculator)
Solution Preview
Calculating Present Values of Rs 100
r = 8 percent. t = 10 years.
PV = C/(1+r)^t
C =100, r = 8%, t = 10 years
PV = 100/(1.08)^10
PV = 100/2.158
PV = 46.31
r = 8 percent. t = 20 years.
PV = 100/(1.08)^20
PV = 100/4.660
PV = 21.45
r = 4 percent. t = 10 years.
PV ...
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