1. Calculating the Number of Periods. Youre trying to save to buy a new $245,000 Ferrari. You have $50,000 today that can be invested at your bank. The bank pays 4.3 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
2. Calculating Present Values. Imprudential, Inc., has an unfunded pension liability of $415 million that must be paid in 20 years. To assess the value of the firms stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 5.2 percent, what is the present value of this liability?
3. Calculating Present Values. You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming youre around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 8.4 percent?