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    You will receive $5,000 three years from now. The discount r

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    You will receive $5,000 three years from now. The discount rate is 8 percent.
    a. What is the value of your investment two years from now? Multiply $5,000  .926 (one year's discount rate at 8 percent).
    b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year's discount rate at 8 percent).
    c. What is the value of your investment today? Multiply your answer to part b by .926 (one year's discount rate at 8 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  8 percent. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference
    due to rounding.

    If you invest $9,000 today, how much will you have:
    a. In 2 years at 9 percent?
    b. In 7 years at 12 percent?
    c. In 25 years at 14 percent?
    d. In 25 years at 14 percent (compounded semiannually)?

    Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is
    discounted at 12 percent, which should you choose?

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    Solution Preview

    The key formula to use in these problem:
    FV = PV(1+r)^n
    where FV = future value
    PV = present value
    r = interest rate
    n = years

    You will receive $5,000 three years from now. The discount rate is 8 percent.
    a. What is the value of your investment two years from now?
    FV = 5,000; rate = 8%; N = 1 years; PV =?
    PV = FV x PVIF8%, 1 year
    = 5,000 x 0.926
    = $4,630

    b. What is the value of your investment one year from now? Multiply your
    answer to part a by .926
    PV = ...

    Solution Summary

    The solution provides detailed calculations and explanations for the problem.

    $2.19