At the end of three years, when you graduate from college, your father has promi
ID: 2358529 • Letter: A
Question
At the end of three years, when you graduate from college, your father has promised to give you a used car that will cost $12,000.
Click here to view Exhibit 11B-1, to determine the appropriate discount factor using tables.
What lump sum must he invest now to have the $12,000 at the end of three years if he can invest money at six percent? (Round discount factor to 3 decimal places, intermediate and final answer to the nearest dollar amount.)
What lump sum must he invest now to have the $12,000 at the end of three years if he can invest money at ten percent? (Round discount factor to 3 decimal places, intermediate and final answer to the nearest dollar amount.)
Click here to view Exhibit 11B-1, to determine the appropriate discount factor using tables.
Explanation / Answer
a) A= 12000 P r = 6% A = P(1+r)^n P = 12000/(1.06)^3 = 10075.43139 b) r = 10% P = 12000/(1.1)^3 = 9015.7776
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