What is the present value, in 2018, of $10,000 received on 2/14/2030 when the an

Question

What is the present value, in 2018, of $10,000 received on 2/14/2030 when the annual interest rate is 8% per year? 5. Your friend has offered to give you either $5,000 today or $10,000 in 10 years. If the interest rate is 7% per year, which option is preferable? 6. 7. You have been offered an investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now. Should you invest in the opportunity if your opportunity cost is 6% per year? what about if your opportunity cost is 13% per year? a. b, 8. You have been offered an investment opportunity. If you invest $10,000 today, you ill receive $500 on 10/25/2019, $1,500 on 3/1/2024, and $10,000 on 5/10/2034. Should you invest in the opportunity if your opportunity cost is 8% per year?

Explanation / Answer

5 What is the present value, in 2018 of $ 10000 received on 2/14/2030 when the annual interest rate is 8% per year Rate 8% NPER 12 12 Using the PV function in excel we get $3,971.14 PV(8%,12,,-10000) Present Value in 2018 is $ 3971.14 6 Your friend has offered to give you either $ 5000 today or $10000 in 10 years. If the interest rate is 7% per year which option is preferable We can either calculate the present value of $ 10000 and compare with $ 5000 to be received today or calculate the future value of $5000 and compare with $10000 Using the PV function in excel we get $5,083.49 PV(7%,10,,-10000) Or Using the FV function in excel we get $9,835.76 FV(7%,10,,-5000) It is preferable to take $ 10000 in 10 years instead of today 7 You have been offered an investment opportunity. If You invest $ 10000 today you will receive $ 500 one year from now, $ 1500 two years from now and $10000 ten years from now a Should you invest in the opportunity if your opportunity cost is 6% per year We can take th decision by calculating the NPV of this investment Year Cash flows Discount Factor @ 6% 0 ($10,000) 1 ($10,000) 1 $500 0.943396 $472 2 $1,500 0.889996 $1,335 10 $10,000 0.558395 $5,584 ($2,609) Since the NPV is negative, you should not investment b What about if your opportunity cost is 13% per year Year Cash flows Discount Factor @ 13% 0 ($10,000) 1 ($10,000) 1 $500 0.884956 $442 2 $1,500 0.783147 $1,175 10 $10,000 0.294588 $2,946 ($5,437) Since the NPV is negative, you should not investment 8 You have been offered an investment opportunity. If You invest $ 10000 today you will receive $ 500 on 10/25/2019, $ 1500 on 03/01/2024 and $ 10000 on 05/10/2034 Should you invest in the opportunity if your opportunity cost is 8% per year Year Cash flows Discount Factor @ 8% 0 ($10,000) 1 ($10,000) 1 $500 0.925926 $463 6 $1,500 0.63017 $945 16 $10,000 0.29189 $2,919 ($5,673) It is assuming that today is 2018 Since the NPV is negative , you should not investment

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