Exercise

Computing a bond's present value

Now that you've calculated future value from present value, it should be trivial to reverse the process.

Recall from the video that if you expect to receive $100 one year from now, the present value of that $100 will be less today (because you prefer to have the money sooner than later). Moreover, if we expect to receive $100 two years from now, the value of that will be less than the present value of $100 one year now.

In this exercise, you will calculate the present value of fv1 and fv2 assuming an r (interest rate) of 0.10, where fv1 is a future value one year from now and fv2 is a future value two years from now.

The objects fv1, fv2, and r, which you generated in the previous exercise, are available in your workspace.

Instructions

100 XP
  • Use basic mathematical operations in R to calculate the present value of fv1. Save this to pv1.
  • Repeat this process to calculate the present value of fv2. Save this to pv2.