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You will receive $5,000 three years from now. The discount rate is 8 percent.

a. What is the value of your investment two years from now? Multiply $5,000 × .926 (one year's discount rate at 8 percent).

b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year's discount rate at 8 percent).

c. What is the value of your investment today? Multiply your answer to part b by .926 (one year's discount rate at 8 percent).

d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n = 3 and i = 8%. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference due to rounding.

Reference no: EM131222404

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