Question

1. What is the present value of $679.6 to be received 5 years from now if the discount rate is 20% per year and the discounting period is annual?

2. What present amount is equivalent to $99 received at the end of 5 years, given an opportunity cost of 16%?

3. What amount received at the end of 15 years is equivalent to $96 received at the end of each year for 15 years, given an opportunity cost of 12%?

4. You know you will need $24,674 at the end of 5 years. How much would you have to deposit annually, starting at the end of the first year, into an account earning 10% to accumulate the needed amount?

5. A 30 year mortgage bears interest at 12% and has a principal of $154,895. What will the annual payments equal?

6. Compute the Future value of an 10 year investment in which you deposit 1000 today.? Assume the opportunity cost is 3%.

Answer 1

1. PV = FV/(1 + r)^n

PV = 679.6/(1 + 0.20)^5

PV = 679.6/2.48832

PV = $273.1159979424

2. PV = FV/(1 + r)^n

PV = 99/(1 + 0.16)^5

PV = 99/2.1003416576

PV = $47.135188526

3. PMT = 96

n = 15

r = 12%

4.

.

You will have to deposit $4,041.5390411295 annually to accumulate the amount needed

5.

Annual payments = $19,229.2318369078

6. FV = PV * (1 + r)^n

FV = 1,000 * (1 + 0.03)^10

FV = 1,000 * 1.3439163793

FV = $1,343.9163793