Calculate the present value of the income stream given below assuming a discount rate of 8 percent.

Question:

Calculate the present value of the income stream given below assuming a discount rate of 8 percent. What happens to present value if the discount rate increases to 20 percent?

Year.................Income

1..........................$3,000

2..........................$4,000

3..........................$6,000

4..........................$1,000

Discount Rate
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...