Question

Present value concept Answer each of the following questions. a. What single investment made today, earning 8% annual interest, will be worth $5,700 at the end of 10 years? b. What is the present value of $5,700 to be received at the end of 10 years if the discount rate is 8%? c. What is the most you would pay today for a promise to repay you $5.700 at the end of 10 years if your opportunity cost is 8%? d. Compare, contrast, and discuss your findings in part a through c. Review Oni Click the icon to see the Worked Solution (Formula Solution). 1 Click the icon to see the Worked Solution (Financial Calculator Solution). Click the icon to see the Worked Solution (Spreadsheet Solution). a. A single investment made today, earning 8% annual interest, worth $5,700 at the end of 10 years is $ 2.640.20 (Round to the nearest cent.) b. The present value of $5,700 to be received at the end of 10 years, if the discount rate is 8%, is $ 2,640.20. (Round to the nearest cent.) C. The most you would pay today for a promise to repay you $5,700 at the end of 10 years if your opportunity cost is 8% is $ 2,640.20 cent.) (Round to the nearest d. Compare, contrast, and discuss your findings in part a through c. (Select all answers that apply.) A. In parts a and c $5,700 is the future value, FV. In part b, $5,700 is the present value, PV. Therefore, parts a and c have the same answer, while part b has a different answer. B. The annual interest rate is also called the discount rate or the opportunity cost C. In all three cases, the answer is $2,640.20. In part a, it is the payment, PMT. In part b, it is the present value, PV. In part c, it is the future value, FV. D. In all three cases, you are solving for the present value, PV, which is $2,640.20.

Answer 1

a. Information provided:

Future value= $5,700

Time= 10 years

Interest rate= 8%

The question is solved by calculating the present value.

Enter the below in a financial calculator to compute the present value:

FV= 5,700

N= 10

I/Y= 8

Press the CPT key and PV to compute the present value.

The value obtained is 2,640.20.

Therefore, a single investment of $2,640.20 needs to be made today.

b. Information provided:

Future value= $5,700

Time= 10 years

Interest rate= 8%

Enter the below in a financial calculator to compute the present value:

FV= 5,700

N= 10

I/Y= 8

Press the CPT key and PV to compute the present value.

The value obtained is 2,640.20.

Therefore, the present value is $2,640.20.

c. Information provided:

Future value= $5,700

Time= 10 years

Interest rate= 8%

The question is solved by calculating the present value.

Enter the below in a financial calculator to compute the present value:

FV= 5,700

N= 10

I/Y= 8

Press the CPT key and PV to compute the present value.

The value obtained is 2,640.20.

Therefore, I would pay $2,640.20 today.

d.Part b and d are correct.

In case of any query, kindly comment on the solution.