Present Value and Discount Calculations
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ScribdTranslationsPresent Value and Discount Calculations
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ScribdTranslationsSolved exercises.
1) Find the present value of:
$1500 payable in 10 years at 5%.
$2000 payable in 8 ½ years at 5% compounded semiannually.
Solution
a) S = 1500, i = 0.05, n = 10
C=1500(1+0.05)−10=$920.87
b) S = 2000, i = 0.05 / 2 = 0.025, n = 8 x 2 + 1 = 17
C=2000(1+0.025)−17=$1314.39
3) Calculate the compound discount if $1000 is payable in 5 years with an interest rate of 14½%.
descuentan a una tasa nominal de 16% compuesto a) anualmente, d) mensualmente, g) continuamente.
Solution
C₀ = 1000, i = j = 0.145, n = 5
S=1000(1+ 0.145)5 =$1968.01
a) S = 1968.01, i = j = 0.16, n = 5
Presentvalue(discountedvalue):
C=1968.01(1+0.16)−5=$937.00
Compound discount:
S – C = 1968.01 – 937.00 = $1031.01
d) S = 1968.01, i = j / m = 0.16 / 12, n = 5 x 12 = 60
C=January 1968(1+0.16/12)−60=$888.97
S - C = 1968.01 - 888.97 = $1079.04
g) S = 1968.01, j=0.16
∞ ,t=5
C=S e − j t =1968.01e−0.16 (5 )=$884.28
∞
S - C = 1968.01 - 884.28 = $1083.73
7) Melisa signs a document committing to pay Néstor $3000 in 6 years with interest at 5%
convertible quarterly. Four years later, Néstor sells the document to Patricia. How much did he pay?
Patricia, for the document, if the interest rate was 4% convertible semiannually?
Solution
C₀ = 3000, i = j / m = 0.05 / 4 = 0.0125, n = 6 x 4 = 24
S=3000(1+ 0.0125)24 =$4042.05
S = 4042.05, i = 0.04 / 2 = 0.02, n = 2 x 2 = 4
The present value two years before the maturity period, at 4% compounded semiannually is
1
C=4042.05(1+0.02)−4=$3734.23
Patricia paid $3734.23 for the document.
10) Mónica owes $1000 payable in 3 years. If today she makes a payment of $400, what will be
the amount of the payment that you will have to make in 2 years to settle your debt assuming a yield
5% convertible semi-annually?
Solution
Choosing the end of year 2 as the focal date, we have
400(1+0.05/2)4 + X =1000(1+0.05/2)−2
441.53+ X=951.81
X =$510.28
The payment at the end of the second will be $510.29
14) Replace two debts of $400 and $800 maturing in 3 and 5 years respectively, with two payments
equal with maturities in 2 and 4 years, assuming a yield of 5% compounded semiannually.
Solution
X (1+ 0.025)6 + X (1+0.025)2=400(1+0.025)4 + 800
1.159693X+1.050625X=1241.525156
2.210318X=1241.525156
X =$561.70
18) At what effective rate is a single payment of $1500 today equivalent to two payments of $800 each with
maturity in 1 and 2 years respectively?
Solution
2
Focal date
1500
0 1 2
800 800
1500=800(1+i)−1 +800(1+i)−2
2
Multiplying by (1+i)
2
1500(1+i) =800(1+I)+800
Dividing by 100
15(1+i)2=8(1+I)+8
15(1+2 i + i2 )=8+ 8i+8
15+30i+15i 2=16+ 8 i
15i2+22i−1=0
Applying the quadratic formula
i= √ 2−4 (15)(−1)
−22± 22
=
−22±23.3238
2(15) 30
I=0.04413≡4.413%