Final answer:
The present value of $114 expected two years from today at a discount rate of 6 percent is approximately $101.47. This is calculated by dividing the future value by the discount factor for the respective time period and discount rate.
Step-by-step explanation:
The present value of $114 expected two years from today at a discount rate of 6 percent can be calculated using the present value formula, which takes into account the time value of money. To calculate the present value of future cash flows, we consider both the amount of the cash flow and the time period over which it will be received. The formula for present value (PV) is:
PV = FV / (1 + r)^n
Where:
- PV is the present value,
- FV is the future value of the cash flow ($114 in this case),
- r is the discount rate (0.06 for 6%), and
- n is the number of periods (2 years).
Therefore, the calculation would be:
PV = $114 / (1 + 0.06)^2
PV = $114 / (1.06)^2
PV = $114 / 1.1236
PV = $101.47
So, the present value of $114 two years from today at a 6% discount rate is approximately $101.47.