Question

Your parents have offered to give you $10,000 for each of the next 5 years. You feel like you could use that money now, so you wan to figure out how much it is worth today. If you think that the relevant interest rate is 5%, what is the present value of the 5 payments?

Answer 1

Solution :

The present value of the 5 payments if the relevant interest rate is 5% = $ 43,294.77

= $ 43,295 ( when rounded off to the nearest whole number )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

01.10.2019 Microsoft Excel НОМE DATA FILE INSERT PAGE LAYOUT FORMULAS REVIEW VIEW A B C D G н 1 Statement showing Calculation of present value of 5 payments Cash Flow 2 PVF @ 5% (5) SI.No. Year Nature of cash flow Discounted Cash Flow |(6) = (4) (5) (1) (2) (3) (4) 1 Annual Payment $ 0.9524 $ 0.9070 $ 9,523.81 9,070.29 4 1 10,000.00 2 Annual Pament $ 5 2 10,000.00 3 Annual Payment $ 0.8638 $ 6 3 10,000.00 8,638.38 4 Annual Payment 0.8227 $ 8,227.02 7 10,000.00 5 Annual Payment 0.7835 S 5 10,000.00 7,835.26 Present value of the 5 payments SUM(G4:G8) $ 43,294.77 6 10 11 12 13 14 оо