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# Present Value and Annuities

Problem 4
1) You will receive \$4,000 three years from now. The discount rate is 10 percent.

One year at 10% n =0.909
Two year at 10% n = 0.826
Three year at 10% = 0.751

a) What is the value of your investment two years from now? Multiply \$4,000 X .909 (one yearââ?¬â?¢s discount rate is 10 percent).

b) What is the value of your investment one year from now? Multiply your answer to part (a) by .909 (one yearââ?¬â?¢s discount rate at 10 percent).

c) What is the value of your investment today? Multiply your answer to part (b) by .909 (one yearââ?¬â?¢s discount rate at 10 percent).

d) Confirm that your answer to part (c) is correct by going to Appendix B (present value of \$1) for n = 3 and i = 10%. Multiply this tabular value by \$4,000 and compare your answer in part (c). There may be a slight difference due to rounding. (three year at 10% is 0.751)

#### Solution Preview

Problem 4
1) You will receive \$4,000 three years from now. The discount rate is 10 percent.

One year at 10% n =0.909
Two year at 10% n = 0.826
Three year at 10% = 0.751

a) What is the value of your investment two years from now? Multiply \$4,000 X .909 (one yearââ?¬â?¢s discount rate is 10 percent).

Solution ââ?¬" ...

#### Solution Summary

The solutiin computes Present Value and Annuities with given data.

\$2.19