Ch 6 Problems

# Ch 6 Problems - Comprehensive Problem An investment will...

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Comprehensive Problem • An investment will provide you with \$100 at the end of each year for the next 10 years. What is the present value of that annuity if the discount rate is 8% annually? • What is the present value of the above if the payments are received at the beginning of each year? • If you deposit those payments into an account earning 8%, what will the future value be in 10 years? • What will the future value be if you open the account with \$1,000 today, and then make the \$100 deposits at the end of each year? 6C-59 Present value problems: End ofthe year: 10 N; 8 I/Y; 100 PMT; CPT PV = -671.01 Beginning of the year: PV = \$671.00 X 1.08 = \$724.69 Future value problems: 10 N; 8 I/Y; -100 PMT; CPT FV = 1,448.66 ION; 8 I/Y; -1,000 PV; -100 PMT; CPT FV = 3,607.58 5.59

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Practice Questions • What interest rate is implied with Manny Ramiriz's 5 year contract paying 10,10,10,10,5 million and a present value of \$42 million? • Assuming this interest rate is correct, what is the value of the contract Ramirez wanted, with payouts of \$25 and \$20 rTlillion over two years?
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