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# 2. P5-12: Present value concept: Answer each of the following questions. a. What single investment made today, earning 12% annual interest, will be

2. P5-12: Present value concept:

Answer each of the following questions.

a. What single investment made today, earning 12% annual interest, will be worth \$6,000 at the end of 6 years?

b. What is the present value of \$6,000 to be received at the end of 6 years if the discount rate is 12%?

c. What is the most you would pay today for a promise to repay you \$6,000 at the end of 6 years if your opportunity cost is 12%?

d. Compare, contrast, and discuss your findings in parts a through c.

SOLUTION:
a. Future Value
Rate
N \$6,000.00
12.00%
6.00 Future Value = Present Value * (1 + Rate) ^ n
\$6,000 = Present Value * (1 + 12%) ^ 6
Present Value b. \$3,039.79 Present Value = Future Value *...

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