FOUNDATION OF FINANCE – 702021

CHAPTER 2: HOW TO CALCULATE PRESENT VALUE

Question 1: In 1st March, 2014, Mr An deposits 100 millions VND and asks VCB to
open a three - month saving account.
The interest rate for saving account is 12%/year.
Requirements:
a. Calculate total interest that Mr An can earn if he withdraws interest every
month?
b. Calculate total interest that Mr An can earn at the maturity date if he doesn’t
withdraw interest monthly?
Question 2: Given the following set of cashflows over the lifetime of a project, what is
the present value (to the nearest $) at a discount rate of 8%?

Year Cash Flow ($)

1 5,000
2 3,000
3 - 4,000
4 1,500

Question 3: Suppose you face the prospect of receiving $200 per year for the next 5
years plus an extra $500 payment at the end of 5 years. Determine how much this
prospect is worth today if the required rate of return is 10%.
Question 4: Suppose we have three future cash flows, $2,000 a year from now,
$1,000 three years from now and $1,500 five years from now. The annual interest rate
is 10%. What is present value of these multiple uneven future cash flows?
Question 5:
1. The present value of $100 expected in two years from today at a discount rate of
6% is: .................................................................................................................
2. If the interest rate is 12%, what is the 2-year discount factor?
3. Present value of $121,000 expected to be received one year from today at an
interest rate (discount rate) of 10% per year is: ..................................................
4. The one-year discount factor at an interest rate of 100% per year is: ................
5. If the one-year discount factor is 0.8333, what is the discount rate (interest rate)
per year?
6. If the present value of $600 expected to be received one year from today is $400,
what is the one-year discount rate?
7. At an interest rate of 10%, which of the following cash flows should you prefer?

Project Year 1 Year 2 Year 3

A $500 $300 $100
B $100 $300 $500
C $300 $300 $300

GVTH: THS LE BAO THY 1

 FOUNDATION OF FINANCE – 702021

8. Calculate net present value of this project with cash flow below, and make decision
whether accept or refuse this project with 8% discount rate:
Year 0 1 2
CF ($) -370,000 20,000 420,000

9. What is the net present value of the following cash flow at a discount rate of 11%?

t=0 t=1 t=2

- $120,000 $300,000 - $100,000

10. What is the net present value of the following cash flow at a discount rate of 12%?
Year 0 1 2 3 4 5
CF -120,000 35,000 35,000 35,000 35,000 -10,000
Question 6: You agree to lease a car for 4 years at $300 per month. You are not
required to pay any money up front or at the end of your agreement. If your opportunity
cost of capital is 0.5% per month, what is the cost of the lease?
Question 7: The state lottery advertises a jackpot prize of $295.7 million, paid in 25
installments over 25 years of $11.828 million per year, at the end of each year. If
interest rates are 5.9% what is the true value of the lottery prize?
Question 8: What is the future value of $20,000 paid at the end of each of the following
5 years, assuming your investment returns 8% per year?
Question 9: Mr. Hopper is expected to retire in 25 years and he wishes accumulate
$750,000 in his retirement fund by that time. If the interest rate is 10% per year, how
much should Mr. Hopper put into the retirement fund each year in order to achieve this
goal? [Assume that the payments are made at the end of each year]
Question 10: Ms. Colonial has just taken out a $150,000 mortgage at an interest rate
of 6% per year. If the mortgage calls for equal monthly payments for twenty years,
what is the amount of each payment? (Assume monthly compounding or discounting.)
Question 11: Calculate the equivalent interest rate by 2 methods (simple interest and
compound interest) :
a) 6-month interest rate with 12% annual interest rate.
b) Quarterly interest rate with 13% annual interest rate.
c) Monthly interest rate with 10% annual interest rate
d) Annual interest rate with 5% 6-month interest rate;
e) Annual interest rate with 3% quarterly interest rate.

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THE END

GVTH: THS LE BAO THY 2