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What is the present value of a growing perpetuity of 0.05 annually 0.10 dicount rate with initial payment of 24000?
You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $24,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.05 annually. If you use a discount rate of 0.10 for investment products, what is the present value of this growing perpetuity?
What is the present value of 5000 received in two years if the interest rate is 7 percent?
Assuming interest is compounded annually, the present value is 5,000 divided by 1.072 .07 is the intererst rate. The exponent is the number of years (2). So the answer is 4,367.20. After the first year, the value is 4367.20 x 1.07 = 4,672.90 Then, at the end of the second year: 4,672.90 x 1.07 = 5,000
What is the present value of a 10-year ordinary annuity of 20000 using a 7 percent discount rate?
Year Amount Disc Rate Present Value 1 20000 1.0700 18692 2 20000 1.1449 17469 3 20000 1.2250 16326 4 20000 1.3108 15258 5 20000 1.4026 14260 6 20000 1.5007 13327 7 20000 1.6058 12455 8 20000 1.7182 11640 9 20000 1.8385 10879 10 20000 1.9672 10167 Total PV 140472
What is the relationship between present and future value?
The relationship is that present value is the current value of future cash flows discounted at the appropriate discount rate. Future values are the amount a present value investment is worth after one or more periods. We learn everything we can in the present so we have some of the answers for the future and what we don't know we ask the pros about. The difference between the two is contributed by time. The value of something (an asset) may typically increase over a period of time. $100 that you give me today is not the same as $100 you give a year later. There is an interest (or return) that accrues when you pay me $100 a year later. The future value after n years of an amount P where R is the rate of interest (in percentage) is calculated as P(1+R/100)**n : using compound interest. If R =50 (that is 50% rate of return, I know it is high) and n = 2 years, the future value of P is P*1.5*1.5=2.25P where is today's value. The Present value can be calculated from the future value as P = F/( (1+R/100)**n ) It is necessary to measure the value of an amount that is allowed to grow at a given interest over a period. This is how the future value is determined.
XY Makes a loan to TZ and receives in exchange a three-year 50000 note bearing interest at a 9 percent annual rate paid annually The market rate of interest for similar notes 11 percent . Journalize?
First, find the present value of the note.We use the present value of a lump sumPV = FV/(1+r)^twhere R is the market rate of interest (11%), T is the number of years (3), and FV is the future value of the note (50,000)Plus the present value of an ordinary annuity (the 9% of 50,000 annually represents an annuity, which we will use for the PMT):PV = PMT x (1- [1 / (1+r)^t] / r )That will tell us how much of a premium or discount to record (in this case it should be a discount) by subtracting the total of the two formulas from 50,000.The journal entry should look like this for the company making the loan:Notes Receivable---Discount on Notes Receivable---CashThen, every year, we amortize that by finding 11% of the carrying value of the note (Total PV we calculated x the market rate of interest). Whatever cash we pay (9% of 50,000) is subtracted from it as our interest component of that number. The remainder is amortized.The journal entry should look a lot like this:CashDiscount on Notes Receivable---Interest Revenue---Notes Receivable
What is the present value of 3 year annuity of 100 if discount rate is 6%?
The formula for the present value of an annuity due. The present value of an annuity due is used to derive the current value of a series of cash payments that are expected to be made on predetermined future dates and in predetermined amounts.
What is the present value of 100 to be received at the end of two years if the discount rate is 12 percent?
If it's 12% per year, compounded annually, then it is: 100 * (1 + 0.12)-2 = 79.72
What is the inerest rate if the government perpetuity pays 4 a year and is selling for 48?
The interest rate is 8 1/3 because Present Value = Payment/Interest rate Present Value = 48 Payment is 4 Interest Rate = Payment/Present Value = 4/48 = 8.33%
What is the present value of a growing perpetuity of 0.05 annually 0.10 dicount rate with initial payment of 24000?
You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $24,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.05 annually. If you use a discount rate of 0.10 for investment products, what is the present value of this growing perpetuity?
What is the definition of present value?
The principal which, drawing interest at a given rate, will amount to the given sum at the date on which this is to be paid; thus, interest being at 6%, the present value of $106 due one year hence is $100.
Any premium or discount on a long-term debt investment is amortized?
Yes, at the end of the year you take the difference between the interest revenue gained and what would have been gained if the investment had the present value interest. For a discount, the difference will be credited against the discount received.
What is the present value of 5000 received in two years if the interest rate is 7 percent?
Assuming interest is compounded annually, the present value is 5,000 divided by 1.072 .07 is the intererst rate. The exponent is the number of years (2). So the answer is 4,367.20. After the first year, the value is 4367.20 x 1.07 = 4,672.90 Then, at the end of the second year: 4,672.90 x 1.07 = 5,000
What is the meaning of the term net present value?
Net Present Value (NPV) means the difference between the present value of the future cash flows from an investment and the amount of investment.Present value of the expected cash flows is computed by discounting them at the required rate of return. For example, an investment of $1,000 today at 10 percent will yield $1,100 at the end of the year; therefore, the present value of $1,100 at the desired rate of return (10 percent) is $1,000. The amount of investment ($1,000 in this example) is deducted from this figure to arrive at net present value which here is zero ($1,000-$1,000).A zero net present value means the project repays original investment plus the required rate of return. A positive net present value means a better return, and a negative net present value means a worse return.
What is the present value of a 10-year ordinary annuity of 20000 using a 7 percent discount rate?
Year Amount Disc Rate Present Value 1 20000 1.0700 18692 2 20000 1.1449 17469 3 20000 1.2250 16326 4 20000 1.3108 15258 5 20000 1.4026 14260 6 20000 1.5007 13327 7 20000 1.6058 12455 8 20000 1.7182 11640 9 20000 1.8385 10879 10 20000 1.9672 10167 Total PV 140472
Jean will receive 8500 per year for 15 years if a 7 percent interest rate is applied what is the current value of the future payments?
If based on the present value of annuities Taking a factor of 9.1 Present value of the 15 years annuities is approx $76,506
What is the relationship between present and future value?
The relationship is that present value is the current value of future cash flows discounted at the appropriate discount rate. Future values are the amount a present value investment is worth after one or more periods. We learn everything we can in the present so we have some of the answers for the future and what we don't know we ask the pros about. The difference between the two is contributed by time. The value of something (an asset) may typically increase over a period of time. $100 that you give me today is not the same as $100 you give a year later. There is an interest (or return) that accrues when you pay me $100 a year later. The future value after n years of an amount P where R is the rate of interest (in percentage) is calculated as P(1+R/100)**n : using compound interest. If R =50 (that is 50% rate of return, I know it is high) and n = 2 years, the future value of P is P*1.5*1.5=2.25P where is today's value. The Present value can be calculated from the future value as P = F/( (1+R/100)**n ) It is necessary to measure the value of an amount that is allowed to grow at a given interest over a period. This is how the future value is determined.
When do you use a discounted cash flow and a future cash flow?
You use it when you want a more accurate valuation of an asset or business. A Discounted Cash Flow analysis (DCF) is performed to project the present value of future cash flows. A single, current year of operations is studied to determine the net operating revenue (Income minus recurring expenses). That year is the extrapolated forward for a holding period (5 years, 10 years). Each of those years are added together and then "discounted" (the opposite of compounding) at an arbitrary rate factoring in the risks associated with collection of future cash flows (inflation, true cost of equity and debt, risk of interruption in cash flow, the unknown) That calculation provides the net present value of the cash flow. If the discount rate you used yields a value greater than the initial equity, the deal is positive. If the discount rate is recalculated upward so that the net present value and the initial equity are equalized, (no longer being greater but matched) the resulting recalculation number is your internal rate of return. (IRR)
