1. If you receive $139.00 in two years and you are told that the present value o

Question

1. If you receive $139.00 in two years and you are told that the present value of that quantity is 123.71, what is the discount rate?

2. Suppose you invest today $1,000 in an investment that pays $100.00 yearly for the next three years and at the third year you receive your initial $1,000. If the rate of interest is 5%, what is the present value of your investment?

3. An executive just turned 45 years old and is considering two differert job offers. One offers to pay $ 250,000 at the end of each of the following years. The second offer will pay $100,000 at the end of each of the following three years plus a retirement account that will pay a bonus of $3,000,000 when he turning 65 years old. The rate of interest is 12%. If the only consideration is monetary, which job offer should this person accept?

Explanation / Answer

1. 123.71 = 139/(1+r)^2

discount rate, r = 6%

2. present value of your investment = -1000 +100/1.05 + 100/1.05^2 +100/1.05^3 +1000/1.05^3 =$136.16

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