Time Value of Money
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Present Value, Future Value and Annuity Due.
1. You will receive $5,000 three years from now. The discount rate is 8 percent.
a. What is the value of your investment two years from now? Multiply
$5,000 x .926 (one year's discount rate at 8 percent).
b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year's discount rate at 8 percent).
c. What is the value of your investment today? Multiply your answer to part b by .926 (one year's discount rate at 8 percent).
d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n = 3 and i = 8 percent. Multiply this tabular value by
$5,000 and compare your answer to part c. There may be a slight difference due to rounding.
2. If you invest $9,000 today, how much will you have:
a. In 2 years at 9 percent?
b. In 7 years at 12 percent?www.mhhe.com/bhd13e
c. In 25 years at 14 percent?
d. In 25 years at 14 percent (compounded semiannually)?
3. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent, which should you choose?
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