Question

In eight years, when he is discharged from the Air Force, Steve wants to buy a $30,000 power boat. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: What lump-sum amount must Steve invest now to have the $30,000 at the end of eight years if he can invest money at:

Answer 1

The correct answer is:

(1) $15,054

(2) $12,990

Step-by-step explanation:

The required table is not given in the question. Please find below the attachment of the table.

Given:

Future value,

= $30,000

If discounting rate is 9%, the present value will be:

=
`Future \ value* PV \ factor(9 \ percent, 8 \ years)`

=
`30000* ((1)/(1.09) )^8`

=
`30000* 0.5018`

=
`15,054` ($)

If discounting rate is 11%, the present value will be:

=
`Future \ value* PV \ factor(11 \ percent, 8 \ years)`

=
`30000* ((1)/(1.11) )^6`

=
`30000* 0.433`

=
`12,990` ($)