Future Value: Concept and Application
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In a Word document, upload your answers to the following questions below. Very importantly - show all your work. If your final answer is wrong, you can still receive partial credit if you show all of your steps and demonstrate a good understanding of the time value of money.
1. In two to three paragraphs, explain why the concept of present value is so important for corporate finance and is often the very first topic taught in any finance class. Do not focus your answer on explaining what present value is, instead focus on some specific reasons why you think it is important and why it is taught first in corporate finance classes before other topics are introduced.
2. Calculate the future value of the following:
a. $300 if invested for five years at a 5% interest rate
b. $900 if invested for three years at a 9% interest rate
c. $7500 if invested for seven years at an 5% interest rate
d. $3000 if invested for ten years with a 0.7% interest rate
3. Calculate the present value of the following:
a. $9500 to be received three years from now with a 3% Interest rate
b. $4500 to be received five years from now with a 2% interest rate
c. $1000 to received two years from now with a 15% interest rate
d. $670,000 to be received eight years from now with a 4% interest rate.
4. Suppose you are to receive a stream of annual payments (also called an "annuity") of $6000 every year for three years starting this year. The interest rate is 3%. What is the present value of these three payments?
5. Suppose you are to receive a payment of $9000 every year for three years. You are depositing these payments in a bank account that pays 1.5% interest. Given these three payments and this interest rate, how much will be in your bank account in three years?
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Solution Summary
PDF document explaining why the concept of present value is so
important for corporate finance with future and present value calulcations step by step and explained.
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