You will receive $5,000 three years from now. The discount rate is 8 percent.

FIN 200 Week 9 9-3You will receive $5,000 three years from now. The discount rate is 8 percent.
Fin 200 Week 9 day 5 chapter 9

Fin 200 Week 9
Introduction to Finance: Harvesting the Money Tree

Axia College of University of Phoenix (UoP)

278 & 279 of Foundations of Financial Management

Present Value, Future Value, and Annuity Due

Resource: Ch. 9 of Foundations of Financial Management

Due Date: Day 5 [Individual forum]

Complete Problems 3, 4, and 5 on pp. 278-279.

9-3 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.

4. 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?w.mhhe.com/bhd13e

c. In 25 years at 14 percent?

d. In 25 years at 14 percent (compounded semiannually)? If the compounding is done semiannually then the solution is as follows:

5. 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?

 

SOLUTION PREVIEW

9-3 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 yearÂ’s discount rate at 8 percent).

 

FV = 5,000; rate = 8%; N = 1 years; PV =?

PV = FV x PVIF_{8%, 1 year}

         = 5,000 x 0.926

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