An investor has asked for your help with the following time value of money applications. Use the
Question:
An investor has asked for your help with the following time value of money applications. Use the appropriate factors from Table 6-4 or Table 6-5 to answer the following questions.
Required:
a. What is the present value of $50,000 to be received in five years using a discount rate of 8%?
b. How much should be invested today at a return on investment of 8% compounded annually to have $50,000 in five years?
c. If the return on investment was greater than 8% compounded annually, would the amount to be invested today to have $50,000 in five years be more or less than the answer to part b? Explain your answer.
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
b This is a future value problem the opposite of pres...View the full answer
Accounting What the Numbers Mean
ISBN: 978-0073527062
9th Edition
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,
Related Video
The time value of money (TVM) is the concept that the money you have in your pocket today is worth more than the same amount would be if you received it in the future because of the profit it can earn during the interim.
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