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

This preview shows 1 out of 2 pages.

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.
Image of page 1

Subscribe to view the full document.

Image of page 2
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern