Answers - Present Value


Present Value - Q1

A fund manager is looking for a return of 7.5% a year.
He sees a 5 year treasury bond paying 8% with a face value of $1,000,000 selling at $1,020,000.
Should he buy this bond?
The fund manager should buy this bond because it has a present value of $1,020,531.97.


An alternative to calculating the present value you could calculate the yield that the bond is offering.
The fund manager should buy this bond because it has a yield (Bond Equivalent Yield) of more than 7.5%.

The Goal Seek is finding a solution to the following equation, solving for 'r'.


Present Value - Q2

If a bank offers a componded interest rate of 5% how much money do I need to invest in order to have $50 after 3 years.
The amount you need to invest at the beginning of the 3 years is £43.19.

The present value can be calculated with the following equation:



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