Tvm Review Lecture.doc

Time Value of Money Problems

1. What is the PV of $100 received in:

a. Year 10 at a discount rate of 1 percent.

b. Year 10 at a discount rate of 13 percent.

c. Year 15 at a discount rate of 25 percent.

d. Each of years 1 through 3 at a discount rate of 12 percent.

a. PV = $100/1.0110 = $90.53

b. PV = $100/1.1310 = $29.46

c. PV = $100/1.2515 = $ 3.52

d. PV = $100/1.12 + $100/1.122

+ $100/1.123

= $240.18

a b c d

N = 10 10 15 3

I = 1 13 25 12

Cpt. PV = 90.53 29.46 3.52 240.18

Pmt = 0 0 0 100

FV = 100 100 100 0

2. For each of the following, compute the future value:

Present Value Years Interest Rate Future Value

$1,000 4 10%

$2,500 6 12.25%

N = 4 6

I = 10% 12.25%

PV = 1,000 2,500

Pmt = 0 0

Cpt. FV = 1,464.10 5,001.01

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