# Each of the problems below provides practice with present value

Question
Each of the problems below provides practice with present value calculations. a. At an annual interest rate of 3.5 percent, what is the present value of a single payment of \$1000 to be received one year from now? b. At an annual interest rate of 3.5 percent, what is the present value of a single payment of \$1000 to be received three years from now? c. At an annual interest rate of 3.5 percent, what is the present value of a stream of payments of \$1000, each to be received at the end of one year, two years, and three years? d. What is the present value of a lottery prize that pays you \$1 million today plus \$1 million one year from now plus \$1 million two years from now? e. How much would you need to deposit today in a bank account paying 4 percent interest if you want to withdraw \$5000 one year from now? f. If your friend offers to loan you \$12 000 today to buy a used car, and wants you to repay him \$13 500 in two years, should you accept this offer? The market interest rate on a loan from the bank is 4 percent.

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