Question

7 Determine the present value if $15,000 is to be received at the end of eight years and the discount rate is 9 percent. How would your answer change if you had to wait six years to receive the $15,000?

Answer 1

The present value = amount to be received after 8 months * PVIF(discount rate , n) = $15000 * PVIF(9% , 8) = $15000 * 0.5019 = $7528.50

The present value (if we had to wait another six years after 8 years) = amount to be received after 14 months * PVIF(discount rate , n) = $15000 * PVIF(9% , 14) = $15000 * 0.2992 = $4488

If as a fresh case we have to wait for six years since initial = amount to be received after 6 months * PVIF(discount rate , n) = $15000 * PVIF(9% , 6) = $15000 * 0.5963 = $8944.50