Present Value

Present Value

Part I - Present Value Computation

Present Value of Bank Account

Part A

 

 

PV of Account @ 7%

 

 

PV=

CF

 

(1+i)n

PV=

15,000

 

(1+7%)1

PV=

15,000

 

1.07

PV ($)=

14,018.69

 

 

 

 

PV of Account @ 4%

 

 

PV=

CF

 

(1+i)n

PV=

15,000

 

(1+4%)1

PV=

15,000

 

1.04

PV ($)=

14,423.08

Table 1: Present Value of Bank Account (Source: Student Material)

Present Value of Two Bank Accounts

Part B

 

Account A

Account B

 

 

PV=

CF

PV=

CF

 

(1+i)n

(1+i)n

PV=

6,500

PV=

12,600

 

(1+6%)^1

(1+6%)^2

PV=

6,500

PV=

12,600 1.06 1.12

PV=

6,132.08

 

PV=

11,213.96

Table 2: Present Value of Two Bank Accounts (Source: Student Material)

Present Value of Gold Mine Deposits

PV at 7%

PV=

CFn

 

 

(1+i)n

 

 

 

PV=

49,000,000

+

61,000,000

+

85,000,000

 

(1+7%)^1

(1+7%)^2

(1+7%)^3

PV=

49,000,000

+

61,000,000

+

85,000,000 1.07 1.14 1.23

PV=

45,794,393

+

53,279,762 ...