Formula to be used
Future Value = Present Value (1 + i)^n
or
Present Value = Future Value * PV of $1(i,n)
where i is the rate of interest and
n is the number of years
1)
Future Value = $20,000
Time years = 25 years
Rate of interest = 8%
Present Value = Future Value * PV of $1 (8%,25years)
= $20,000 * 0.146
= $2,920
Therefore, $2,920 have to be invested now to have $20,000 in 25 years.
2)
Future Value = $50,000
Time years = 5 years
Rate of interest = 8%
Present Value = Future Value * PV of $1 (8%,5years)
= $50,000 * 0.681
= $34,050
Therefore, $34,050 have to be invested now to have $50,000 in 5 years.
3)
Future Value = $100,000
Time years = 5 years
Rate of interest = 10%
Present Value = Future Value * PV of $1 (10%,5years)
= $100,000 * 0.621
= $62,100
Therefore, value of classic car that could fetch $100,000 in 5 years at 10% discount rate is $62,100.
Present value table has been used to obtain present value of $1, upto 3 decimal places are considered.
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