1. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $4,700.00 in one year. Account B will be worth $7,900.00 in two years. Both accounts earn 3.8% interest. What is the present value of each of these accounts? What is the present value of the two accounts together?

2. Suppose you just inherited an oil field. This oil field mine is believed to have three years worth of oil deposit. The net income this oil filed is projected to bring you each year for the next three years:

Year 1: $26,000,000

Year 2: $64,000,000

Year 3: $57,000,000

Compute the present value of this stream of income at a discount rate of 6%. You are to arrive at the present value for a whole stream of income, i.e. the total value of receiving all three payments. This is actually the value of the oil filed.

You compute this by computing the present value of each component of the cash flow (each year's proceeds) with regard to the time you receive the amount, and then add together the three present values in order to get the present value of the oil field. (See the example in the spreadsheet).