Final answer:
The present value of $600 to be received 14 years from now at an 8% discount rate is approximately $159.10. This calculation uses the present value formula to reflect the time value of money.
Step-by-step explanation:
The student's question pertains to the concept of present value, which is a fundamental principle in finance that describes the current worth of a sum of money to be received at a future date, given a specific rate of return or discount rate. To determine the present value of $600 to be received 14 years from now discounted back to the present at 8 percent, we must apply the present value formula, which is:
PV = FV / (1 + r)^n
Here, PV stands for present value, FV is the future value of the money ($600), r is the discount rate (8%, or 0.08 as a decimal), and n represents the number of years (14). Plugging these values into the formula, we get:
PV = 600 / (1 + 0.08)^14
After calculating this, we find that the present value of $600 to be received in 14 years at an 8% discount rate is approximately $159.10 (rounded to the nearest cent)
Understanding the present value can be hugely beneficial when comparing different financial investments or determining the worth of cash flows received at different times. This concept is widely used by investors, finance professionals, and businesses to evaluate the time value of money.