Capstone Checkpoint - c. There may be a slight difference...

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Capstone Checkpoint: Present Value, Future Value, and Annuity Due Christy Thornton FIN/200 June 25, 2010 Mernoush Banton
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3. You will receive $5,000 three years from now. The discount rate is 8 percent. a. What is the value of your investment two years from now? Multiply $5,000 x .926 (one year’s discount rate at 8 percent). $5,000 x .926= $4,630 b. What is the value of your investment one year from now? Multiply your answer to part a by . 926 (one year’s discount rate at 8 percent). $4,630 x .926= $4,287.38 c. What is the value of your investment today? Multiply your answer to part b by .926 (one year’s discount rate at 8 percent). $4,287.38 x .926 = $3,970.11 d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n = 3 and i = 8 percent. Multiply this tabular value by $5,000 and compare your answer to part
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Unformatted text preview: c. There may be a slight difference due to rounding. $5,000 x .794 = $3,970 4. If you invest $9,000 today, how much will you have: a. In 2 years at 9 percent? $9,000 x 1.188 = $10,692 b. In 7 years at 12 percent? $9,000 x 2.211 = $19,899 c. In 25 years at 14 percent? $9,000 x 26.462 = $238,158 d. In 25 years at 14 percent (compounded semiannually)? (n= 25 x 2 = 50) (i= 14/2 = 7%) 50 x 29.457 = $216,113 5. Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is discounted at 12 percent, which should you choose? $30,000 x .003 = $90. I would go with $95 today, because it has a higher present value than $30,000 in 50 years....
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This note was uploaded on 06/25/2010 for the course FIN FIN 200 taught by Professor Banton during the Spring '10 term at University of Phoenix.

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Capstone Checkpoint - c. There may be a slight difference...

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