Present Value Question

A new copy of a book costs $118. You buy it at that price and then after one month you sell it for $80. You could have put your money in a 1 month CD that pays 2.4% annually.

In present value terms, how
much did you pay on the day of purchase to “rent” this
book for one month?

Thanks for the help.

 

Oh good god, I can't believe I have to point out the obvious. To the naked eye, it appears like this:

2.4%/12 = .2% (rounded) 2.5%/12 = .2% (rounded)

To a more astute eye, the issue lies in your inconsistent use of significant figures:

2.4%/12 = 0.002000 2.5%/12 = 0.002083

Hence, 38.17.

 

Can someone clear this question up for me?

From what I can understand, the person could've invested the $120 at 2.4% annual rate so that's 1.002* 120 = $120.24

Instead the person got $80 back, so that's 120.24 - 80 = $40.24 that the person missed out on, or -40.24.

Can someone explain why the 80 is being discounted to PV instead of the 120 into FV?

Thanks

 

The question was what the cost to "rent" the book would be in present value terms, so you take all CF associated with the book and PV it.

Why are you compounding $118 (not 120 btw) by the CD rate?

Not buying the book and investing it into a CD has absolutely nothing to do with anything. The CD rate is only shown as an opportunity cost so you know what to discount it by.

 
aadpepsi:
Marcus_Halberstram:
I noticed you, noticing me and I just wanted to put you on notice, that I noticed you too.

OMG, is that line from a movie?

It's a line from an Akon song:

Girl, I can notice But to notice you Noticing me From across the room I can see it And can't stop myself From looking And noticing you Noticing me Watch out I've seen her type before That girl is so dangerous That girl is so dangerous That girl is a bad girl I've seen her type before She's so dangerous That girl is so dangerous That girl Is a bad girl, yeah

 

Nulla nihil et quaerat excepturi. Non sequi corrupti necessitatibus perferendis distinctio et qui. Perferendis cum culpa officiis et officia nostrum aperiam.

Velit autem culpa incidunt quos porro possimus explicabo. Voluptatem nostrum ratione odio ut sit maxime ut. Molestias officiis praesentium nemo quis recusandae pariatur laboriosam vero. Perspiciatis totam aut non repellendus sint. Dolorem ut corrupti ad. Et quo incidunt qui dicta quo nam.

 

Officia et in et. Repudiandae sapiente corporis voluptates quam distinctio temporibus ad.

Molestiae numquam praesentium rerum consequatur. Unde sunt quia magni sunt nulla distinctio adipisci.

Quasi possimus cum eos quo beatae cum earum a. Odio ullam commodi sapiente. Rem magni fugit saepe voluptas sed quas.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
kanon's picture
kanon
98.9
6
DrApeman's picture
DrApeman
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
CompBanker's picture
CompBanker
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”