Basics of Corporate Finance

Directions: Calculate the answer to each question and enter the correct answer. Check your solution with the Answer Key on the next page.

13. If the annual discount rate is 8.5%, how much will an investor pay to receive $100,000 at the end of 1 year?
$_____________________

14. What is the present value of $250, to be received in two years time, using an annual discount rate of 9%?
$_____________________

15. What is the present value of $10,000, due five years from now, using a discount rate of 10%?
$_____________________

ANSWER KEY

13. If the annual discount rate is 8.5%, how much will an investor pay to receive $100,000 at the end of 1 year?
$92,166
PV = FVT[ 1 / (1 + R) ]T
PV = $100,000 [ 1 / (1 + 0.085)]1
PV = $100,000 [ 1 / 1.085]
PV = $100,000 [0.92166]
PV = $92,166

14. What is the present value of $250, to be received in two years time, using an annual discount rate of 9%?
$210.42
PV = FVT[ 1 / (1 + R) ]T
PV = $250 [ 1 / (1 + 0.09)]2
PV = $250 [ 1 / (1.09)]2
PV = $250 [ 0.84170]
PV = $210.42

15. What is the present value of $10,000, due five years from now, using a discount rate of 10%?
$6,209.20
PV = FVT[ 1 / (1 + R) ]T
PV = $10,000 [ 1 / (1 + 0.10)]5
PV = $10,000 [ 1 / (1.10)]5
PV = $10,000 [ 0.62092]
PV = $6,209.20