Question

Present Value Computations Assuming that money is worth 8%, compute the present value of Round answers to the nearest whole number. 1. $7,000 received 15 years from today. 2. The right to inherit $1,000,000 14 years from now. 3. The right to receive $1,000 at the end of each of the next six years. 4. The obligation to pay $3,000 at the end of each of the next 10 years. 5. The right to receive $5,000 at the end of the 7th, 8th, 9th, and 10th years from today.

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

a.Present value=7000/1.08^15

=$2207(Approx)

b.Present value=1,000,000/1.08^14

=$340461(Approx).

c.Present value=1000/1.08+1000/1.08^2+1000/1.08^3+1000/1.08^4+1000/1.08^5+1000/1.08^6

=$4623(Approx).

d.Present value=

3000/1.08+3000/1.08^2+3000/1.08^3+3000/1.08^4+3000/1.08^5+3000/1.08^6+3000/1.08^7+3000/1.08^8+3000/1.08^9+3000/1.08^10

=$20130(Approx).

e.Present value=5000/1.08^7+5000/1.08^8+5000/1.08^9+5000/1.08^10

=$10436(Approx).