Question

Compute the present value for the following:

$3,000 to be paid in one year with a 9% discount rate

$3,000 to be paid in three years with a 9% discount rate

$4,000 to be paid in ten years with a 5% discount rate

Answer 1

Answer:

Future Value = Present Value * (1 + r) ^ n

Situation 1: $3,000 to be paid in one year with a 9% Discount Rate
Future Value = $3,000
Present Value =??
Rate (r) = 9%
Time (n) = 1 year

$3,000 = Present Value * (1 + 0.09) ^ 1
$3,000 = Present Value * 1.09^1
$3,000 = Present Value * 1.09
Present Value = $2,752.29

Situation 2: $3,000 to be paid in three years with a 9% Discount Rate
Future Value = $3,000
Present Value =??
Rate (r) = 9%
Time (n) = 3 years

$3,000 = Present Value * (1 + 0.09) ^ 3
$3,000 = Present Value * 1.09^3
$3,000 = Present Value * 1.295029
Present Value = $2,316.55

Situation 3: $4,000 to be paid in ten years with a 5% Discount Rate
Future Value = $4,000
Present Value =??
Rate (r) = 5%
Time (n) = 10 years

$4,000 = Present Value * (1 + 0.05) ^ 10
$4,000 = Present Value * 1.05^10
$4,000 = Present Value * 1.628895
Present Value = $2,455.65