You will receive $10,000 three years from now. The discount rate is 12 percent.

Question

You will receive $10,000 three years from now. The discount rate is 12 percent.

a. What is the value of your investment two years from now? Multiply $10,000 × .893 (one year’s discount rate at 12 percent). (Round your answer to 2 decimal places.)

Value of investment:

b. What is the value of your investment one year from now? Multiply your rounded answer to part a by .893 (one year’s discount rate at 12 percent). (Round your answer to 2 decimal places.)

Value of investment:

c. What is the value of your investment today? Multiply your rounded answer to part b by .893 (one year’s discount rate at 12 percent). (Round your answer to 2 decimal places.)

Value of investment:

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

a.Value of investment two years from now=$10000/1.12

=$10000*0.893

=$8930

b.Value of investment one year from now=$8930/1.12

=$8930*0.893

=$7974.49

c.Value of investment today=$7974.49/1.12

=$7974.49*0.893

=$7121.22(Approx).

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