What if your rich uncle instead left you an inheritance of $400,000 each year for five years. What is the value today of the inheritance if interest rates are 4%?

2 You won $70 million in the state lottery. You have a choice of receiving the $70 million

prize in equal installments of $7.0 million dollars each year for ten years, or receive $55 million today. Which would you choose, if the current interest rate is 5%?

3 Your company has to settle a legal case. You have the choice of paying $1.3 million each year for three years or pay $3.75 million immediately. If interest rates are 3%, which would you choose?

4 You want to take a trip around the world when you graduate college in two years. If the trip will cost $40,000,how much do you have to have saved today(assuming no future savings) if interest rates are 6%?

Attachment for Test PRESENT VALUE of $1 (Table B.1, Appendix B-10))

ONE FUTURE CASH FLOW

n

i 2% 3%

1. 1 0.9804 0.9709

2. 2 0.9612 0.9426

3. 3 0.9423 0.9151

4. 4 0.9238 0.8885

5. 5 0.9057 0.8626

6. 6 0.8880 0.8375

7. 7 0.8706 0.8131

8. 8 0.8535 0.7894

9. 9 0.8368 0.7664

10. 10 0.8204 0.7441

20 0.6730 0.5537 30 0.5521 0.4120 40 0.4529 0.3066

4% 5%

0.9615 0.9524 0.9246 0.9070 0.8890 0.8638 0.8548 0.8227 0.8219 0.7835 0.7903 0.7462 0.7599 0.7107 0.7307 0.6768 0.7026 0.6446 0.6756 0.6139 0.4564 0.3769 0.3083 0.2314 0.2083 0.1420

6%

0.9434 0.8900 0.8396 0.7921 0.7473 0.7050 0.6651 0.6274 0.5919 0.5584 0.3118 0.1741 0.0972

B-11)) 6%

0.9434 1.8334 2.6730 3.4651 4.2124 4.9173 5.5824 6.2098 6.8017 7.3601

11.4699 13.7648 15.0463

PRESENT VALUE of an ANNUITY of $1 (Table B.3.Appendix

ANNUITY

n

i 2% 3%

1. 1 0.9804 0.9709

2. 2 1.9416 1.9135

3. 3 2.8839 2.8286

4. 4 3.8077 3.7171

5. 5 4.7135 4.5797

6. 6 5.6014 5.4172

7. 7 6.4720 6.2303

8. 8 7.3255 7.0197

9. 9 8.1622 7.7861

10. 10 8.9826 8.5302

20 16.3514 14.8775 30 22.3965 19.6004 40 27.3555 23.1148

4% 5%

0.9615 0.9524 1.8861 1.8594 2.7751 2.7232 3.6299 3.5460 4.4518 4.3295 5.2421 5.0757 6.0021 5.7864 6.7327 6.4632 7.4353 7.1078 8.1109 7.7217

13.5903 12.4622 17.2920 15.3725 19.7928 17.1591