1. Compute the present value of $100 in t years for the following combinations of discount rates and times:
a. r = 10 percent, t = 10 years
b. r = 10 percent, t = 20 years
c. r = 5 percent, t = 10 years
d. r = 5 percent, t = 20 years
2. Would you prefer to receive $10,000 in one year or $20,000 in five years, if the interest rate is
a. 0 percent?
b. 10 percent?
c. 20 percent?
3. Find the interest rate implied by the following:
a. Present value = 100, future value = 171, years = 11
b. Present value = 200, future value = 322.10, years = 5
4. What is the present value of the following stream of cash flows: $200 in one year, $300 in two years and $400 in three years if the interest rate is 8%?
5. Suppose you have just celebrated your 19th birthday. A rich uncle has set up a trust fund for you that will pay you $150,000 when you turn 30. If the relevant discount rate is 9 percent, how much is this fund worth today?
6. Your parents will retire in 18 years. They currently have $250,000, and they think that they will need $1,000,000 at retirement. What interest rate must they earn to reach their goal (assuming they will not save any additional funds)?
7. If you deposit your money today in an account that pays 6.5% annual interest, how long will it take to double your money?