FOUNDATION OF FINANCIAL MANAGEMENT CHAPTER 9

FOUNDATION OF FINANCIAL MANAGEMENT CHAPTER 9 - due to...

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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 _ .926 (one yearÂ’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 yearÂ’s discount rate at 8 percent). $4,630 x .926 = $4,287 c. What is the value of your investment today? Multiply your answer to part b by .926 (one yearÂ’s discount rate at 8 percent). $4,287 x .926 = $3,970 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
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Unformatted text preview: due to rounding. Appendix B PV = FV PVIF $5,000 x .794 = $3,970 (n = 3, %i = 8) 4. If you invest $9,000 today, how much will you have: FV = PV FVIF a. In 2 years at 9 percent? $9,000 1.188 = $ 10,692 (n = 2, %i = 9) b. In 7 years at 12 percent? $9,000 2.211 = $ 19,899 (n = 7, %i = 12) c. In 25 years at 14 percent? $9,000 26.462 = $238,158 (n = 25, %i = 14) d. In 25 years at 14 percent (compounded semiannually)? $9,000 29.457 = $265,113 (n = 50, %i = 7) 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 / (1.12) 50 = $104 I should choose $30,000 in 50 years because it has higher present value than $95 today....
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FOUNDATION OF FINANCIAL MANAGEMENT CHAPTER 9 - due to...

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