How much would you be willing to pay today for an investment that pays $1,300 per year at the end of the next 10 years?  Your required rate of return is 7% per year.

Calculations

1. What is the present value of $10,000 to be received in 8 years? Your required rate of return is 6% per year.

r = 6%

n = 8

PV

PV

PV = $ 6,274.12

2. If you invest $1,000 a year for 15 years at 6% annual interest, how much will you have at the end of the 15^th year?

r= 6%

n = 15

FV

FV = 1000 *

FV = $23,275,97

3. If you buy a 10 year, 2% CD for $12,000. How much is it worth at maturity?

r= 2%

n= 10

FV= PV *

FV = 12,000 *

FV = $14,627,93

4. How much would you be willing to pay today for an investment that pays $1,300 per year at the end of the next 10 years?  Your required rate of return is 7% per year.

r=7%

n=10

CF=$1,300

PV

PV = 1,300 *

PV = $9,130,66

Paid for Amount: $9,130,66