Scribd
Upload
413 views

AF208 Lecture Demo WK 2

The document contains 6 math problems involving calculating present and future values of cash flows using various interest rates and time periods. It provides the questions, solutions, and answers for each problem. The problems cover calculating the initial price of a car given loan payments and interest rate, present value of a salary and bonus over 25 years at 12% discount rate, present value of annual payments over 15 years at 7% rate, present value of an annuity over 6 years at 8% rate, present value of an annuity paying every quarter over 5 years at 8% quarterly rate, and determining if a one-time payment today or annual payments over 4 years is a better option given the amounts and interest rates.

Uploaded by

Narayan Diviya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
413 views

AF208 Lecture Demo WK 2

The document contains 6 math problems involving calculating present and future values of cash flows using various interest rates and time periods. It provides the questions, solutions, and answers for each problem. The problems cover calculating the initial price of a car given loan payments and interest rate, present value of a salary and bonus over 25 years at 12% discount rate, present value of annual payments over 15 years at 7% rate, present value of an annuity over 6 years at 8% rate, present value of an annuity paying every quarter over 5 years at 8% quarterly rate, and determining if a one-time payment today or annual payments over 4 years is a better option given the amounts and interest rates.

Uploaded by

Narayan Diviya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 3

Note: 4 decimal places if step by step working..

Problem 1:
You are making car payments of $315/month for the next 3 years, you know that your
car loan has an interest rate of 12.4%, discounted monthly, what was the initial price of
the car?
Solution: 

Answer: $9,429.53

Problem 2:
Mr. Mohammad Ali has received a job offer from a large investment bank as an
accountant.  His base salary will be $35,000 constant to date of retirement.  He will
receive his first annual salary payment one year from the day he begins to work.  In
addition, he will get an immediate $10,000 bonus for joining the company.   Mr. Ali is
expected to work for 25 years. What is the present value of the offer if the discount rate
is 12 percent?
Solution: 

PVA25 = 274,509.87
Bonus = 10,000
Answer: $284,509.87
Problem 3:
Mr. Khaild will receive $8,500 a year for the next 15 years from her trust.   If a 7 percent
interest rate is applied, what is the current value of the future payments if first receipt
occurs today?
Solution: 

Answer: $82,836.48
Problem 4:
What is the present value of an annuity of $2,000 per year, with the first cash flow
received three years from today and the last one received 8 years from today?  Use a
discount rate of eight percent.
Solution: 

PVA6 = $9,245.76
PV2 = 9,245.76 / (1 + 0.08) 2 = $7,926.749

Problem 5:
A 10-year annuity pays $900 four times in year.  The first $900 will be paid five years
from now.  If the stated interest rate is eight percent, discounted quarterly, what is the
present value of this annuity?
Solution: 

PVA6 = $17,022.53
PV4 = 17,022.53/ (1 + 0.08/4) 4*4
Answer: $ 12,400
Problem 6:
You have won the lottery!  The lottery officials offer you two choices for collecting your
winnings.  You may take four payments of $250,000 over the next four years or, you
may take a one-time payment of $750,000 today.  Which would you take?
Solution: 

Answer: $792,466.36
 Option A

You might also like