You will receive $8,800 three years from now. The discount rate is 10 percent. a

Question

You will receive $8,800 three years from now. The discount rate is 10 percent. a What is the value of your investment two years from now? Multiply $8,800 x .909 (one year's discount rate at 10 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 .909 (one year's discount rate at 10 percent). (Round your answer to 2 decimal places.) Value of investment What is the value of your investment today? Multiply your rounded answer to part b by .909 (one year's discount rate at 10 percent. Round your answer to 2 decimal places.) Value of investment 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= 10%. Multiply this tabular value by $8,800 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.) Present value e. Now compute the present value of $8,800 for 3 years at 10 percent using the formula and financial calculator methods. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value

Explanation / Answer

Value of investments two years from Now First Calculate PV PV = FV/(1+r)n Present value = 8800/(1+.1)3 8800*.751 $6,611.57 2 years from now Value = 6611(1+.1)2 6611*1.21 Value = $ 8000 The value 2 years from now would be $ 8000 b Value one year from now Value = 6611*1.1 $7,273 The one year from now value would be $ 7273 C. Value of investment today will be $ 6611.57

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