Investment X offers to pay you $6,000 per year for 10 years, whereas Investment
ID: 2811729 • Letter: I
Question
Investment X offers to pay you $6,000 per year for 10 years, whereas Investment Y offers to pay you $8,000 per year for 7 years. If the discount rate is 10 percent, Investment X has a present value of $_____________ , and Investment Y has a present value of $_____________ . If the discount rate is 21 percent, Investment X has a present value of $_____________ , and Investment Y has a present value of $ ___________
Investment X offers to pay you $6,000 per year for 10 years, whereas Investment Y offers to pay you $8,000 per year for 7 years. If the discount rate is 10 percent, Investment X has a present value of $_____________ , and Investment Y has a present value of $_____________ . If the discount rate is 21 percent, Investment X has a present value of $_____________ , and Investment Y has a present value of $ ___________
Explanation / Answer
1. Computation of Present Value of Investment X and Investment Y at Discount rate of 10%
Investment X Present Value = Annual payments * PVAF (10%, 10)
Investment X Present Value = 6000 * 6.144567
Investment X Present Value = $36867.40
Investment Y Present Value = Annual payments * PVAF (10%, 7)
Investment Y Present Value = 8000 * 4.868419
Investment Y Present Value = $38947.35
2. Computation of Present Value of Investment X and Investment Y at Discount rate of 21%
Investment X Present Value = Annual payments * PVAF (21%, 10)
Investment X Present Value = 6000 * 4.054078
Investment X Present Value = $24324.47
Investment Y Present Value = Annual payments * PVAF (21%, 7)
Investment Y Present Value = 8000 * 3.507946
Investment Y Present Value = $28063.57
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