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Time Value of Money Concepts - Present Value

Suppose a State of Maryland bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

You inherited an oil well that will pay you $25,000 per year for 25 years, with the first payment being made today. If you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it?

A. $284,595
B. $299,574
C. $314,553
D. $330,281

Solution Preview

Please refer to the attached Excel file for better understanding of formulas in MS Excel.

Suppose a State of Maryland bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

FV of ...

Solution Summary

There are two problems. Solutions to these problems explain the methodology to calculate present value in the given cases with the help of functions in MS Excel.

$2.19