Question

In five years, when he is discharged from the Air Force, Steve wants to buy a $34,000 power boat.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

What lump-sum amount must Steve invest now to have the $34,000 at the end of five years if he can invest money at: (Round your final answer to the nearest whole dollar amount.)

Six percent :

Twelve Perent:

Answer 1

Answer:

Six percent : $25407

Twelve Perent: $19293

Explanation:

Computation of Present Value:

When Amount is invested at 6%:

Present Value = Amount to be received in Future x Present Value Interest Factor(r,n)

= $34000 x Present Value Interest Factor(6%,5)

= $34000 x 0.74726

= $25406.84 i.e $25407

When Amount is invested at 12%:

Present Value = Amount to be received in Future x Present Value Interest Factor(r,n)

= $34000 x Present Value Interest Factor(12%,5)

= $34000 x 0.56743

= $19292.62 i.e $19293