Time value of Money

Essay specific features

 

Issue:

Miscellaneous

 

Written by:

Raymond N

 

Date added:

February 25, 2013

 

Level:

University

 

Grade:

A

 

No of pages / words:

2 / 454

 

Was viewed:

9377 times

 

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Essay content:

Your uncle died last year and left you money in his will. You are to receive $50,000 in four years (i.e., in time 4). (a) What is the value of the inheritance today (in time 0) if the appropriate discount rate is 6% and you compound annually? PV = (future payment)/(1+r)t PV = (50,000)/(1+.06)4 PV = $39,604...
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Your neighbor is buying a new recreational vehicle (RV). If he buys the RV for cash, the price is $32,000. Alternatively, he could buy the RV for monthly payments of $645 at the end of each month for 60 months. At what discount rate, will the two options be equally attractive (using monthly compounding)? PV = C [(1/r) - (1/(r (1 + r)t)] 32,000 = 645 [(1/r) - (1/(r(1 + r)60)] Used Microsoft Excel Payment Function =PMT(0...
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