Presnet Value

1What is the present value of:

a. $8,000 in 10 years at 6 percent?

b. $16,000 in 5 years at 12 percent?

c. $25,000 in 15 years at 8 percent?

d. $1,000 in 40 periods at 20 percent?

Solution:

Appendix B

PV = FV * PVIF

a. $ 8,000 * .558 = $4,464

b. $16,000 * .567 = $9,072

c. $25,000 * .315 = $7,875

d. $ 1,000 * .001 = $1

2

If you invest $12,000 today, how much will you have:

a. In 6 years at 7 percent?

b. In 15 years at 12 percent?

c. In 25 years at 10 percent?

d. In 25 years at 10 percent (compounded semiannually)?

Solution:

Appendix A

FV = PV * FVIF

a. $12,000 * 1.501 = $ 18,012

b. $12,000 * 5.474 = $ 65,688

c. $12,000 * 10.835 = $130,020

d. $12,000 * 11.467 = $137,604 (5%, 50 periods)

5

Mrs. Crawford will receive $6,500 a year for the next 14 years from her trust. Ifan 8 percent interest rate is applied, what is the current value of the future payments?

Solution:

Appendix D

PVA = A * PVIFA (8%, 14 periods)

= $6,500 * 8.244 = $53,586

3

How much would you have to invest today to receive:

a. $12,000 in 6 years at 12 percent? 12,000x.507=6,084

b. $15,000 in 15 years at 8 percent? 15,000x.315=4,725

c. $5,000 each year for 10 years at 8 percent? 5,000x6.710=33,550

d. $40,000 each year for 40 years at 5 percent? 40,000x17.159=686,360

FOR QUESTIONS A and B use the Formula:

PV = FV × PVIF

TO GET PVIF USE APPENDIX B IN YOUR BOOK

For questions C and D use the Formula:

PV = A (the annuity) × PVIFA

TO GET PVIFA USE APPENDIX D IN YOUR BOOK