You will receive $7,500 three years from now. The discount rate is 12 percent. a

Question

You will receive $7,500 three years from now. The discount rate is 12 percent. a. What is the value of your investment two years from now? Multiply $7,500 .893 (one year's discount rate at 12 percent). (Round your answer to 2 decimal Places.) b. What is the value of your investment one year from now? Multiply your rounded answer to by,893 (one year's discount rate at 12 percent). (Round your answer to 2 decimal places.) c. What is the value of your investment today? Multiply your rounded answer to by .893 (one year's discount rate at 12 percent). (Round your answer to 2 decimal places.) d. Confirm that your answer to part c is correct by going to the link provided below (present value of $1) for n = 3 and i = 12%. Multiply this tabular value by $7,500 and compare your answer to part c. There may be a slight difference due to rounding Use Appendix B. (Round your answer to 2 decimal places.) e. Now compute the present value of $7,500 for 3 years at 12 percent using the formula and financial calculator methods. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

a.

Pv=7500×.893

=$6697.5

b.

Pv=6697.5×.893

=$5980.87

c.

Pv=5980.87×.893

=$5340.92

d

By using table

Pv=7500×.712=$5340

e.

By using formula:

PV=7500(1+.12)^-3

=$5338.35

By using financial calculator:

Fv=$7500

i=12%

T=3 years

Pv=$5338.35

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