Question

Present value concept Answer each of the following questions. a. How much money would you have to invest today to accumulate $5,500 after 8 years if the rate of return on your investment is 6%? b. What is the present value of $5,500 that you will receive after 8 years if the discount rate is 6%? C. What is the most you would spend today for an investment that will pay $5,500 in 8 years if your opportunity cost is 6%? d. Compare, contrast, and discuss your findings in part a through c. a. A single investment made today, earning 6% annual interest, worth $5,500 at the end of 8 years is $(). (Round to the nearest cent.) b. The present value of $5,500 to be received at the end of 8 years, if the discount rate is 6%, is $(). (Round to the nearest cent.) C. The most you would spend today for an investment that will pay $5,500 in 8 years if your opportunity cost is 6% is d. Compare, contrast, and discuss your findings in part a through c. (Select all answers that apply.) A. In all three cases, the answer is $3,450.77. 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. B. In parts a and c, $5,500 is the future value, FV. In part b, $5,500 is the present value, PV. Therefore, parts a and c have the same answer, while part b has a different answer (Round to the nearest cont.)

Answer 1

a.Amount to be invested today=Present value of $5500 at 6% for 8 years=Future value/(1+discount rate)^n

=5500/(1.06)^8=$3450.77

b.Present value of $5500 at 6% for 8 years=Future value/(1+discount rate)^n

=5500/(1.06)^8=$3450.77

c.Amount to be spent=Present value of $5500 at 6% for 8 years=Future value/(1+discount rate)^n

=5500/(1.06)^8=$3450.77

d.Option C and D.

All three answers are Present value or PV, hence Option A is incorrect.

All three answers have same answer $3450.77 hence option B is incorrect.

Option C is correct as all the above three answers are $3450.77

Option D is also correct, discount rate, opportunity cost and annual interest rate are same.