Chapter 2
How to Calculate Present Value
9. Present values What is the PV of $100 received in:
a. Year 10 (at a discount rate of 1%)?
b. Year 10 (at a discount rate of 13%)?
c. Year 15 (at a discount rate of 25%)?
d. Each of years 1 through 3 (at a discount rate of 12%)?
10. Continuous compounding The continuously compounded interest rate is 12%.
a. You invest $1,000 at this rate. What is the investment worth after five years?
b. What is the PV of $5 million to be received in eight years?
c. What is the PV of a continuous stream of cash flows, amounting to $2,000 per year, starting immediately and continuing for 15 years?
11. Compounding intervals You are quoted an interest rate of 6% on an investment of
$10 million. What is the value of your investment after four years if interest is compounded:
a. Annually?
b. Monthly? or
c. Continuously?