Your task this week is to teach Grammy and the board the time value of money and its related concepts. She would like you to address several specific questions to demonstrate the use of time value of money techniques
1. What is the present value of an ordinary annuity of $1,000 per year for 7 years discounted back to the present at 10 percent? What would be the present value if it were an annuity due?
2. What is the future value of an ordinary annuity of $1,000 per year for 7 years compounded at 10%? What would be the future value if it were an annuity due?
3. You have just borrowed $100,000, and you agree to pay it back over the next 25 years in 25 equal end-of-year payments plus 10 percent compound interest on the unpaid balance. What will be the size of these payments?
4. What is the present value of a $1,000 perpetuity discounted back to the present at 8 percent?
5. What is the present value of a $1,000 annuity for 10 years, with the first payment occurring at the end of year 10 (that is, ten $1,000 payments occurring at the end of year 10 through 19), given a discount rate of 10 percent?
6. Given a 10 percent discount rate, what is the present value of an perpetuity of $1,000 per year if the first payment does not begin until the end of year 10?