QUESTION 1

Your uncle Buck will pay you R 10 000 in five years if you are a good boy or girl. What will be the present value of that future payment in two years, assuming an 11 percent discount rate?

QUESTION 2

One year from now you tell Uncle Buck who was going to pay you the R 10 000 in question 1, that you don't want to be a good boy or girl because you are already a man or woman and that he should keep his lousy R 10 000. In present value terms, how much did this rashness cost you?

QUESTION 3

Your uncle Buck realises that he shouldn't be treating you as a child and gives you a choice of R 5 000 now or R 10 000 in four years. What interest rate will make you indifferent between this present value and future value?

QUESTION 4

You are a hard bargainer and convince your Uncle Buck to agree to change the terms to R 12 000 in three years or R 6000 now. What interest rate does this imply which would you choose if you can invest at 20% interest?