If your opportunity cost is 12%, how much will you pay for a bond that pays $100 per year forever?

If your opportunity cost is 12%, how much will you pay for a bond that pays $100 per year forever?

Answer:  PV = $100/.12 = $833.33

What is the present value of the following perpetuities?

a.    $600 discounted at 7%

b.    $450 discounted at 12%

c.     $1,000 discounted at 6%

d.    $880 discounted at 9%

Answer: 

a.     PV = $600/.07

        PV = $8,571.43

b.    PV = $450/.12

        PV = $3,750

c.     PV = $1,000/.06

        PV = $16,666.67

d.    PV = $880/.09

        PV = $9,777.78

What is the value on 1/1/14 of the following cash flows? Use a 10% discount rate, and round your answer to the nearest $1.00.

Date Cash Received         Amount of Cash

          1/1/16                                     $100

          1/1/17                                     $200

          1/1/18                                     $300

          1/1/19                                     $400

          1/1/20                                     $500

A) $1,500

B) $880

C) $968

D) $1,065

Consider the following cash flows:

Date Cash Received         Amount of Cash

          1/1/15                                     $100

          1/1/16                                     $100

          1/1/17                                     $500

          1/1/18                                     $100

What is the value on 1/1/14 of the above cash flows? Use an 8% discount rate, and round your answer to the nearest $1.00.

A) $649

B) $601

C) $740

D) $800

If you put $200 in a savings account at the beginning of each year for 10 years and then allow the account to compound for an additional 10 years, how much will be in the account at the end of the 20th year? Assume that the account earns 10%, and round to the nearest $10.

A) $8,300

B) $9,100

C) $8,900

D) $9,700