FIN1013 Financial Analysis and Budgeting Chapter \#10 - Time Value of Money Concept Example Exercise - Present Value Concepts and Calculations Case \#1 A lump sum payment of $10,000 will be received at the end of 15 years from now. The market rate of interest (ie. discount rate) is 8% What is the Present Value of this lump sum payment? (ie. Value in today's dollars) Case \#2 At the end of each of the next 3 years, the following payments will be received totalling an aggregate amount of $60,000 : The market rate of interest is 11%. What is the Present Value of this series of payments? (Value in today's dollars) Case \#3 At the end of each of the next 3 years, the following payments will be received totalling an aggregate amount of $60,000 : The market rate of interest is 10%. (1) What is the Present Value of this series of payments? (Value in today's dollars) (2) Is there an easier way? Re-calculate the Present value of this series of payments using a simpler method of discounting. FIN1013 Financial Analysis and Budgeting Chapter \#10 - Time Value of Money Concept Practice Exercise - Present Value Concepts and Calculations For each of the independent situations presented below, calculate the Present Value (PV) of the future payment(s). 1.) A single payment of $8,000 in 5 years. Market rate of interest is 6%. 2.) A single payment of $50,000 in 24 years. Market rate of interest is 9%. 3.) A payment of $12,000 at the end of year 1,$15,000 at the end of year 2,$25,000 at the end of year 3 , and $21,000 and the end of year 4. Market rate of interest is 7%. 4.) A payment of $19,000 at the end of each of the next 7 years. Market rate of interest is 14%. 5.) A payment of $5,000 at the end of each of the next 4 years and a single lump sum payment of $11,000 at the end of year 5 . Market rate of interest is 10%. 6.) A payment of $6,000 at the end of each of the next 10 years with additional single lump sum payments of $12,000 at the end of year 3 , and $20,000 at the end of year 10. Market rate of interest is 12% FIN1013 Financial Analysis and Budgeting Chapter \#10 - Time Value of Money Concept Example Exercise - Present Value Concepts and Calculations Case \#1 A lump sum payment of $10,000 will be received at the end of 15 years from now. The market rate of interest (ie. discount rate) is 8% What is the Present Value of this lump sum payment? (ie. Value in today's dollars) Case \#2 At the end of each of the next 3 years, the following payments will be received totalling an aggregate amount of $60,000 : The market rate of interest is 11%. What is the Present Value of this series of payments? (Value in today's dollars) Case \#3 At the end of each of the next 3 years, the following payments will be received totalling an aggregate amount of $60,000 : The market rate of interest is 10%. (1) What is the Present Value of this series of payments? (Value in today's dollars) (2) Is there an easier way? Re-calculate the Present value of this series of payments using a simpler method of discounting. FIN1013 Financial Analysis and Budgeting Chapter \#10 - Time Value of Money Concept Practice Exercise - Present Value Concepts and Calculations For each of the independent situations presented below, calculate the Present Value (PV) of the future payment(s). 1.) A single payment of $8,000 in 5 years. Market rate of interest is 6%. 2.) A single payment of $50,000 in 24 years. Market rate of interest is 9%. 3.) A payment of $12,000 at the end of year 1,$15,000 at the end of year 2,$25,000 at the end of year 3 , and $21,000 and the end of year 4. Market rate of interest is 7%. 4.) A payment of $19,000 at the end of each of the next 7 years. Market rate of interest is 14%. 5.) A payment of $5,000 at the end of each of the next 4 years and a single lump sum payment of $11,000 at the end of year 5 . Market rate of interest is 10%. 6.) A payment of $6,000 at the end of each of the next 10 years with additional single lump sum payments of $12,000 at the end of year 3 , and $20,000 at the end of year 10. Market rate of interest is 12%