Question

You expect to receive a payment of $600 one year from now. Answer the following questions and show your calculations:

A. The discount rate is 6%. What is the present value of the payment to be received?
B. Suppose that the discount rate rises to 7%. What is the present value of the payment to be received?C. What will cause the present value of a future payment to decline?

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

You expect to receive a payment of $600 one year from now.

A) Discount rate= 6%

We need to use the following formula:

PV= FV/(1+i)^n

PV= 600 / (1.06)= $566.04

B) Discount rate= 7%

PV= 600 / (1.07)= $560.75

C) The future value of a certain cash flow declines when the interest rate (discount rate) increases or "n" (time) increases.