18
Berk/DeMarzo/Harford •
Fundamentals of Corporate Finance
c.
5
5
FV
2,000 1.1
3,221.02
=×
=
0
1
2
5
2,000
FV
=
?
Evaluate:
Since with compound value in the last 5 years you get interest on the interest earned
in the first 5 years as well as interest on the original $2,000, the value at the end of 5 years
($3,257,79) is significantly greater than the value after 10 years ($2,552,56).
4.
a.
12
10,000
PV
1.04
6,245.97
=
=
0
1
2
3
12
PV
=
?
10,000
b.
20
10,000
PV
1.08
2,145.48
=
=
0
1
2
3
20
PV
=
?
10,000
c.
6
10,000
PV
1.02
8,879.71
=
=
0
1
2
3
4
5
6
PV
=
?
10,000
5. Plan:
You are being offered a choice between $5,000 today and $10,000 in 10 years. One way
to evaluate this decision is determine how much the $10,000 in 10 years is worth today. In this
way we can compare the $5,000 today against the present value of the $10,000 in 10 years.
Execute:
10
10,000
PV
1.07
5,083.49
=
=
0
1
2
3
4
10
PV
=
?
10,000
Evaluate:
The 10,000 in 10 years is worth $5083.49 today. It is preferable to the $5,000
payment today because it is worth more.