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Jan. 31, 2023•0 likes•5 views

Jan. 31, 2023•0 likes•5 views

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Present value concept Answer each of the following questions. What single investment made today, earning 12% annual interest, will be worth $6,000 at the end of 6 years? What is the present value of $6,000 to he received at the end of 6 years if the discount rate is 12%? What is the most you would pay today for a promise to repay you $6,000 at d* end of 6 years if your opportunity cost is 12%? Compare, contrast, and discuss your findings in parts a through c. Solution Part a We have: FV = 6000 N= 6 R= 12% We can use following formula to calculate pv: PV = FV / (1+r)^n = 6000/ (1+0.12)^6 = 6000 / 1.12^6 = $3039.79 So they need to invest $3039.79 to accumulate $6,000 in 6 years. Part b We have: FV = 6000 N= 6 R= 12% We can use following formula to calculate pv: PV = FV / (1+r)^n = 6000/ (1+0.12)^6 = 6000 / 1.12^6 = $3039.79 Hence, PV of $6000 would be $3039.79. Part c We have: FV = 6000 N= 6 R= 12% We can use following formula to calculate pv: PV = FV / (1+r)^n = 6000/ (1+0.12)^6 = 6000 / 1.12^6 = $3039.79 I would be willing to pay $3039.79 for a promise of $6000 repayment in 6 years. Part d All parts from a-c has the same thing to calculate, they differ only in the manner of asking question. .

- 1. Present value concept Answer each of the following questions. What single investment made today, earning 12% annual interest, will be worth $6,000 at the end of 6 years? What is the present value of $6,000 to he received at the end of 6 years if the discount rate is 12%? What is the most you would pay today for a promise to repay you $6,000 at d* end of 6 years if your opportunity cost is 12%? Compare, contrast, and discuss your findings in parts a through c. Solution Part a We have: FV = 6000 N= 6 R= 12% We can use following formula to calculate pv: PV = FV / (1+r)^n = 6000/ (1+0.12)^6 = 6000 / 1.12^6 = $3039.79 So they need to invest $3039.79 to accumulate $6,000 in 6 years. Part b We have: FV = 6000
- 2. N= 6 R= 12% We can use following formula to calculate pv: PV = FV / (1+r)^n = 6000/ (1+0.12)^6 = 6000 / 1.12^6 = $3039.79 Hence, PV of $6000 would be $3039.79. Part c We have: FV = 6000 N= 6 R= 12% We can use following formula to calculate pv: PV = FV / (1+r)^n = 6000/ (1+0.12)^6 = 6000 / 1.12^6 = $3039.79 I would be willing to pay $3039.79 for a promise of $6000 repayment in 6 years. Part d All parts from a-c has the same thing to calculate, they differ only in the manner of asking question.