Nabilah Khansa Luthfiyah – 1911000089

Exercises
a. What is the PV of $10,000.00 money you will receive in the next year? Next 2 years?
Next 5 years? Assumed the interest rate is 4% p.a.
Solution
Formula Future Value: PV (1+i) n
Next year:
The principal $10,000.00
The interest ($10,000.00 x 0,04) $ 400.00
Total Balance $10,400.00 -> $10,000.00 x (1+0,04)
Next 2 years:
The principal $10,400.00
The interest ($10,400.00 x 0,04) $ 416.00
Total Balance $10,816.00 -> $10,000.00 x (1+0,04) 2
Next 5 years:
Total Balance $12,166.53 -> $10,000.00 x (1+0,04) 5

b. Today you put Rp500.000,00 in bank deposit and this bank offers interest rate of 4,25%
p.a. What is your balance in the next 2 years?
c. Solution
Known:
The principal (PV) = Rp500.000,00
The interest (i) = 4,25% -> 0,0425
Next 2 years:
Formula Future Value : PV (1+i) n
Total Balance FV2 : Rp500.000,00 (1+0,0425) 2
: Rp543.403,13
d. Under the assumption of 4% interest rate, what is your choice:
1) Receiving money of Rp25.000,00 today
2) Receiving money of Rp26.150,00 in next 3 years
3) Receiving money of Rp26.075,00 in next 2 years
Solution
Known:
The interest (i) = 4% -> 0,04
The principal (PV)= Rp25.000,00
1) Receiving money of Rp25.000,00 today
The PV is X then X*(1+0,04) = Rp25.000,00
and X = Rp25.000,00/ (1+0,04)
= Rp24.038,47
Nabilah Khansa Luthfiyah – 1911000089

2) Receiving money of Rp26.150,00 in next 3 years

X = Rp25.000,00 / (1+0,04) 3
= Rp22.224,91
4) Receiving money of Rp26.075,00 in next 2 years
X = Rp25.000,00 / (1+0,04) 2
= Rp23.113,905
Bassed on the assumptions I got, I would rather get money now than get the money
4 years later or 2 years later. Because the present value of money is more
valuable than the value of money with the same amount in the future,
because of the potential capacity for earning money.