Question

1. If the opportunity cost rate is 8% and is compounded annually, what is the present value of $8,200 due to be received in 12 years? Use the equation method to determine the present value.

$3,068      
$3,256      
$3,552      
$3,688      
$3,854      

2. Liam is considering putting money in an investment plan that will pay him $52,000 in 12 years. If Liam's opportunity cost rate is 7 percent compounded annually, what is the maximum amount he should be willing to pay for the investment today? Use a financial calculator to determine the amount.

$23,089      
$25,526      
$26,888      
$28,685      
$30,534      

3. Lisa's opportunity cost rate is 10 percent compounded annually. How much must she deposit in an account today if she wants to receive $3,200 at the end of each of the next 12 years? Use the equation method to determine the amount to be deposited today.

$17,226      
$14,868      
$23,252      
$18,725      
$21,804      

Answer 1

1.B.$3,256.

present value of single amount = amount to be received /(1+r)^n

here,

r = 8%=>0.08

n=12.

present value = $8200/(1.08)^12

=>$3,256.

2.A.$23,089.

present value of amount to be received in future = amount to be received /(1+r)^n

=>$52,000/(1.07)^12

=>$23,089.

3.e. $21,804.

present value of an annuity = A*[1-(1+r)^(-n)]/r

here,

A=$3200

r=10% =>0.10

n=12 years

=>$3200*[1-(1.10)^(-12)]/0.10

=>$3200*[0.6813692/0.10]

=>3200*6.813692

=>$21,804.