Il. Problems 1. What is the present value of a. P8.000 in 10 years at 6 percent? b. P16,000 in S years at 12 percent? C,-P25,000 in 15 years at 8 percent? d. P1,000 in 40 periods at 20 percent? 5 If you invest P12,000 today, how much will you have a in 6 years at 7 percent? b. in 15 years at 12 percent? cC in 25 years at 10 percent? d. in 25 years at 10 percent (compounded semiannually)? 3. How much would you have to invest today to receive a, P12,000 in 6 years at 12 percent? b. — P15,000 in 15 years at 8 percent? ¢. 5,000 each year for 10 years at 8 percent? d. 40,000 each year for 40 years at 5 percent?4, . Ata growth (interest) rate of 8 percent annually Chapter 10 ——— ; period for the following number of periods, how If you invest #8,000 per much would you have a. 7 years at 9 percent? b. 40 years at 11 percent? Mrs. Perez will receive 6,500 a year forthe next 14 years from her trust, If an 8 percent interest rate is applied, what is the current value of the future payments? 1 the end of five years, what amount should If you owe 30,000 payable a! : : your creditor accept in payment immediately if she could earn 11 percent on her money’? Mr. Castro retired as president of the Color Tile Company but is currently on a consulting contract for £45,000 per year for the next 10 years. , ; ‘a. If Mr. Castro's opportunity cost (potential return) is 10 percent, what is the present value of his consulting contract? b. — Assuming that Mr. Castro will not retire for two more years and will not start to receive his 10 payments until the end of the third year, what would be the value of his deferred annuity? You need P23,956 at the end of nine years, and your only investment outlet is a 7 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. a. What single payment could be made at the beginning of the first year to achieve this objective? b. — What amount could pay at the end of each year annually for nine years to achieve this same objective? Martha has been depositing 1,500 in her savings account every December since 2002. Her account earns 6 percent compounded annually. How much will she have in December of 2011? (Assume that a deposit is made in 2011, Make sure to count the years carefully.) . how long will it take fe a sum to double? To triple? § , : g will it take tor anauer. plc? Select the year that is closest to the correctWM. 12. Find the present value of 5,000 to be received in four years discounted at the following rates: (a) 5 percent, (b) 10 percent and (c) 15 percent. The Time Value of Money 187 Jacob manufacturing Company is considering an investment in a new machine costing P25,000.The machine is expected to provide the following returns over the next five years: year | = £5,000, year 2 = 6,000. year 3 = P7,500. year 4 = P7,500 and year 5 = P9,500. These returns are assumed to be received at the end of each year. If the firm requires a 20 percent return on its investment, should it purchase the machine? . Your bank offers to lend you 20,000 to be repaid in six equal year-end installments of P5,142.71. What interest rate is the bank charging you on this loan? What is the present value of a stream of payments of P500 per year forever, assuming interest rates of (a) 5 percent and (b) 10 percent? . You are considering the purchase of a bond for P1,000 that will not pay any interest during its ten-year life but will be worth P2,839 when it matures. If you buy this bond and hold it until maturity, what rate of return will you earn?