Question

Present value (with changing years). When they are first born, Grandma gives each of her grandchildren a $4,500 savings bond that matures in 18 years. For each of the following grandchildren, what is the present value of each savings bonds if the current discount rate is 7%? a. Seth turned fifteen years old today. b. Shawn turned twelve years old today. c. Sherry turned eight years old today. d. Sheila turned four years old today. e. Shane was just born.

Answer 1

Answer a.

Present Value = Future Value / (1 + Discount Rate)^Period
Present Value = $4,500 / (1 + 0.07)^3
Present Value = $3,673.34

Answer b.

Present Value = Future Value / (1 + Discount Rate)^Period
Present Value = $4,500 / (1 + 0.07)^6
Present Value = $2,998.54

Answer c.

Present Value = Future Value / (1 + Discount Rate)^Period
Present Value = $4,500 / (1 + 0.07)^10
Present Value = $2,287.57

Answer d.

Present Value = Future Value / (1 + Discount Rate)^Period
Present Value = $4,500 / (1 + 0.07)^14
Present Value = $1,745.18

Answer e.

Present Value = Future Value / (1 + Discount Rate)^Period
Present Value = $4,500 / (1 + 0.07)^18
Present Value = $1,331.39