capstone - 4 If you invest \$9,000 today how much will you...

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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? a. Multiply\$5,000 * .926 (one year’s discount rate at 8 percent). \$4630 b. What is the value of your investment one year from now? a. Multiply your answer to part a by .926 (one year’s discount rate at 8 percent). 4630*.926= 4287.38 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) 4287.38*.926=3970.11 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 c. There may be a slight difference due to rounding. 0.794*5000=3970
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Unformatted text preview: 4. If you invest \$9,000 today, how much will you have: a. In 2 years at 9 percent? 9000*(1.09)^2= 10,632.90 b. In 7 years at 12 percent? 9000*(1.12)^7= 19,896.13 c. In 25 years at 14 percent? 9000*(1.14)^25= 238,157.24 d. In 25 years at 14 percent (compounded semiannually)? 9000*(1.07)^50= 265,113.23 The percentage was cut in half for the semiannually therefore arriving at 7 percent and the years were doubled representing the semiannually therefore arriving at 50 years. 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? According to these calculations the money would be worth more today than 50 years from now, so you should accept the money today....
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This note was uploaded on 05/20/2011 for the course FIN 200 taught by Professor Williams during the Spring '08 term at University of Phoenix.

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