Question

what is the present value of $1,500 to be received 2 years from now, if the discount rate is: (a) 6%, (b) 10%, and (c) 15%?

1. Use the appropriate table (Appendix C: Table 1) to answer the above questions.

2. Use the formula shown at the bottom of Appendix C, Table 1, to answer the above questions.

Answer 1

Answer of Part 1:

If Discount Rate is 6%:

PV = FV * PV of $1 (r%, n)
PV = $1,500 * PV of $1 (6%, 2)
PV = $1,500 * 0.89000
PV = $1,335.00

If Discount Rate is 10%:

PV = FV * PV of $1 (r%, n)
PV = $1,500 * PV of $1 (10%, 2)
PV = $1,500 * 0.82645
PV = $1,239.68

If Discount Rate is 15%

PV = FV * PV of $1 (r%, n)
PV = $1,500 * PV of $1 (15%, 2)
PV = $1,500 * 0.75614
PV = $1,134.21

Answer of Part 2:

If Discount Rate is 6%:

PV = FV / (1+r)^n
PV = $1,500 / (1+0.06)^2
PV = $1,500 / 1.1236
PV = $1,334.99

If Discount Rate is 10%:

PV = FV / (1+r)^n
PV = $1,500 / (1+0.10)^2
PV = $1,500 / 1.2100
PV = $1,239.67

If Discount Rate is 15%

PV = FV / (1+r)^n
PV = $1,500 / (1+0.15)^2
PV = $1,500 / 1.3225
PV = $1,134.22