1/ Suppose that you are going to receive a single payment of $100 in 5 years. If the discount rate is 5%, what is the present value? Remember to round off to the nearest dollar.

2/ Suppose that you are going to receive the $100 in 5 years, but the discount rate is 10% instead of 5%. What is the present value?

3/ Suppose someone offers you an investment where you pay $10,000 today and you get back $3,000 per year for 4 years (with the first payment in 1 year). If the discount rate is 7%, what is the NPV (net present value)?

NOTE: You PAY $10,000 and GET the $3,000 payments, so be careful about the signs.

4/ In the prior question (question #3), what would the NPV be if the payments continued for 5 years instead of 4?

5/ Which of the following is true about the impact of a change in the discount rate? Multiple choices

a. A higher discount rate means that money in the future has a higher present value

b. A higher discount rate means that money in the future has a lower present value

c. The discount rate has no impact on the present value

6/ Suppose that you save $1,000 for retirement and put it in the stock market. If the stocks rise at 7% per year, how much will your investment be worth in 40 years?

7/ Suppose that you have the same $1,000 to invest as in the prior question. If I know a better investment that will grow 8% instead of 7%, what would the future value be in 40 years?

8/ Based on your answers to the prior 2 questions (#6 and #7), how much would you be willing to pay me today for my advice?

HINT: Think about how much more money you would have to have today to invest at 7% to end up with the same amount you would have if I helped you earn 8%.

9/ Suppose that you invest the $1,000 at 7%, but instead of letting it grow for 40 years you only let it grow for 30 years. How much do you have?

10/ Which of the following has a higher present value? multiple choices

a. 1000 in 5 years with a discount rate of 5%

b. 1000 in 10 years at a discount rate of 2%