Question

Use the table below to answer the following questions: Present Value of 1 Factor Present Value of an Annuity of 1 Factor Period 1/2 Yr Full-Yr 1/2 Yr Full-Yr 1 0.9578 0.9174 0.9578 0.9174 2 0.9174 0.8417 1.8753 1.7591 3 0.8787 0.7722 2.7540 2.5313 4 0.8417 0.7084 3.5957 3.2397 5 0.8062 0.6499 4.4019 3.8897 6 0.7722 0.5963 5.1740 4.4859 Assumption: Required annual effective rate (EPR) of return is 9%. If an investment pays you $324,000 at the end of 3 years, what is its present value?

Answer 1

present value = amount to be received * present value factor for 3 years @9%........(this present value factor can be known from table).

=>$324,000* 0.7722

=>$250,192.80.

alternative method:(formula method):

present value of single amount = amount * (1 / (1+r)^n)

here,

r=9%=>0.09

n=3.

present value = $324,000* 1/ (1.09)^3

=>$250,187.45