Problem:
1. In two to three paragraphs, explain why the concept of present value is so important for corporate finance and is often the very first topic taught in any finance class.
2. Calculate the future value of the following:
a. $500 if invested for five years at a 5% interest rate
b. $700 if invested for three years at a 2% interest rate
c. $1200 if invested for seven years at an 11% interest rate
d. $400 if invested for ten years with a 0% interest rate
3. Calculate the present value of the following:
a. $2400 to be received three years from now with a 4% discount rate
b. $900 to be received five years from now with a 10% interest rate
c. $1150 to received two years from now with a 24% interest rate
d. $45,000 to be received eight years from now with a 7% interest rate.
4. Suppose you are to receive a stream of annual payments (also called an "annuity") of $7000 every year for three years starting this year. The discount rate is 6%. What is the present value of these three payments?
5. Suppose you are to receive a payment of $4000 every year for three years. You are depositing these payments in a bank account that pays 3% interest. Given these three payments and this interest rate, how much will be in your bank account in three years?