# 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 Summary

The solution provides detailed calculations and explanations for the problem.

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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 = ...

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