Question

1. How much will you have when deposit $25,000 for 9 years, if the interest is 12%? 2. If you want to have $200,000 in 3 years and you can earn 12%, how much would you have to depo it today? 3. If you think you can sell an asset for $60,000 in five years and you think the appropriate discount ra e is 9%, how much would you be willing to pay for the asset today? For example, you were buying a classic car.

Answer 1

Answer :

(1)

Future value = P ( 1 + i ) ⁿ

Where P = principal amount

i = rate of interest

n = Payment period

so  Future value = P ( 1 + i ) ⁿ

⁼ $ 25000 ( 1 + 0.12 ) ⁹

⁼ $ 69326 .97

So if you deposite $ 25000 for 9 years @ 12 % Interest You will get $ 69326.97

( 2) Present value = Future value / ( 1 + i) ⁿ

  = $ 200000 / ( 1 + 0.12 ) ³

= $ 142356.05

We should deposite $ 142356.05.

(3) Present value = Future value / ( 1 + i) ⁿ

= $ 60000 / ( 1+ 0.09 ) ⁵

  = $ 38995.88

We can pay $ 38995.88 for assets Today.