Chapter 05 Present Value Concept.pdf

# Chapter 05 Present Value Concept.pdf - Chapter 05...

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2/10/2019 Chapter 05 Homework-Madelyn Stephens 1/2 Student: Madelyn Stephens Date: 2/10/19 Instructor: George Bernard Course: FIN 3403 - FULL TERM - SPRING 2019 Assignment: Chapter 05 Homework Present value concept Answer each of the following questions. a. What single investment made today, earning % annual interest, will be worth \$ at the end of years? 16 7,000 15 b. What is the present value of \$ to be received at the end of years if the discount rate is %? 7,000 15 16 c. What is the most you would pay today for a promise to repay you \$ at the end of years if your opportunity cost is %? 7,000 15 16 d. Compare, contrast, and discuss your findings in part a through c . The present value, PV , of some future amount, , to be received n periods from now, assuming an interest rate (or opportunity cost) of r , is calculated as follows: FV n . = PV FV n (1 + r ) n Substituting \$ , r , and n into the present value equation yields: FV n = 7,000 = 0.16 = 15 . = = \$755.49 PV \$7,000 (1 + 0.16) 15 Thus, the present value of the \$ investments in parts a , b , and c is \$ . The answer to all three parts is the same.

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