1.APPLICATION Simple Present Value
What is the present value of $250 to be paid in two years if the interest rate is 15%?
2.APPLICATION How Much Is That Jackpot Worth?
As an example of how the present value concept can be used, let s assume that you just hit the $20 million jackpot in a lottery, which promises you a payment of $1 million for the next twenty years. You are clearly excited, but have you really won $20 million?
3.APPLICATION Yield to Maturity on a Simple Loan
If Pete borrows $100 from his sister and next year she wants $110 back from him, what is the yield to maturity on this loan?