Question

VALUATION OF FUTURE CASH FLOWS, TIME VALUE OF MONEY

1. Calculating Present Values: You need $85,000 in 10 years. If you can earn 0.78 percent per month, how much will you have to deposit today?

2. Calculating Future Values: You have $20,000 you want to invest for the next 40 years. You are offered an investment plan that will pay you 6 percent per year for the next 20 years and 10 percent per year for the last 20 years. How much will you have at the end of the 40 years? Does it matter if the investment plan pays you 10 percent per year for the first 20 years and 6 percent per year for the next 20 years? Why or why not?

Answer 1

Ans1) $ 33457.73

FV =	Future Value
PV =	Present Value
r =	rate of interest
n=	no of period
PV =	FV/ (1 + r )^n
PV =	85000 / ((1 + 0.78%)^120)
PV =	33457.73

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