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Option Information Present Value Formula PV Answer Do you have enough money? Example Calculate the present value of investing in a start-up company if you
Option | Information | Present Value Formula | PV Answer | Do you have enough money? |
Example | Calculate the present value of investing in a start-up company if you expect to receive $5,000 in 4 years and the annual market rate is 6%. Remember to use the Present Value factor in your calculation. | $5,000 X .79209 | $3,960.45 | Yes/No |
#1 | Buy a bond. The bond pays $3,500 at the end of 2 years with a 12% coupon (interest) paid semi-annually (every 6 months). Calculate the present value of the bond. *Remember there are 4 steps to this analysis (PV of the bond, interest payments, PV of the interest payments, sum of the two PV calculations). | |||
#2 | Pay off a loan. The loan is due at the end of 2 years (balloon loan). It has a balance of $4,500 and an interest rate of 11% that accrues annually. The bank said they will take the present value of the loan. Calculate the present value of the loan. | |||
#3 | Lend $3,500 to your family for a home renovation. They will pay you $4,500 at the end of the 2 years. The annual market rate is 7%. Calculate the present value of your loan to your family. |
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