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# How to Calculate Present Value and Future Value

1. For each of the following, compute the present value: Present Value (\$) Years Interest Rate (%) Future Value (\$) 9 8.5 10,000 7 6.25 5,000 2. For each of the following, compute the future value: Present Value (\$) Years Interest Rate (%) Future Value (\$) 40,000 6 5.5 30,000 10 7.0 3.

Solve for the unknown number of years in each of the following: Present Value (\$) Years Interest Rate (%) Future Value (\$) 4,000 6.0 8,049 20,000 4.5 26,045 2 / 3 5. You are scheduled to receive \$20,000 in 2 years. How much will you have in 10 years? 6. You have \$4,000 to deposit. Stanley Bank offers 5.4 percent per year compounded monthly (0.45% per month), while Grey Bank offers 5.4 percent but will only compound annually (5.4% per year).

How much will your investment be worth in 15 years at each bank? 7. An investment that pays interest quarterly (every 3 months) offers to triple your money in 18 months (don’t believe it). What is the quarterly interest rate? 8. You want to have accumulated one million dollars when you retire in 20 years.

You hope to earn a 12% annual return on your investment portfolio. How much do you have to invest today? How much would you need to invest if you earn only a 6% return? 3 / 3 9. Investment A offers to pay you \$8,000 per year for 9 years, whereas Investment B offers to pay you \$11,000 per year for 6 years.

Which of these cash flow streams has the higher present value if the discount rate is 4%? If the discount rate is 16%? 10. A project will generate \$50,000 in cash flow each year for the next 8 years.

The equipment needed for the project costs \$300,000. If you can borrow the money to buy the equipment at 8% annual interest, does it make sense for you to undertake this project? 11. A life insurance company is trying to sell you an investment policy for \$240,000 that will pay you and your heirs \$10,000 per year forever. What is the implied return on this investment?

Last Updated on February 11, 2019

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