Question

Present value concept

1. What single investment made today, earning 5% annual interest, will be worth $4,400 at the end of 5 years?
2. What is the present value of $4,400 to be received at the end of 5 years if the discount rate is 5%?
3. What is the most you would pay today for a promise to repay you $4,400 at the end of 5 years ifyour opportunity cost is 5%?
4. Compare, contrast, and discuss your findings in part a through c.
A. A single investment made today, earning 5% annual interest, worth $4,400 at the end of 5 years is $______.
B. The present value of $4,400 to be received at the end of 5 years, the discount rate is 5% is______.
C. The most you would pay today for a promise to repay you $4,400 at the end of 5 years if your opportunity cost is 5% is $_____.​
D. Compare, contrast, and discuss your findings in part a through c. ​
A. The annual interest rate is also called the discount rate or the opportunity cost.
B. In all three​ cases, you are solving for the present​ value, PV​, which is ​$3,447.52.
C. In all three​ cases, the answer is ​$$3,447.52. In part a​, it is the​ payment, PMT. In part b​, it is the present​ value, PV. In part c​, it is the future​ value, FV.
D. In parts a and c​, ​$4,400 is the future​ value, FV. In part b​, ​$4,400 is the present​ value, PV. ​Therefore, parts a and c have the same​ answer, while part b has a different answer.

Answer 1

The present value concept

1. The single investment made today, earning 5% annual interest that will be worth $4,400 at the end of 5 years is:

$3,447.52

2. The present value of $4,400 to be received at the end of 5 years if the discount rate is 4% is:

$3,447.52

3. The most I would pay today for a promise to repay me $4,400 at the end of 5 years if my opportunity cost is 5% is:

$3,447.52

4. A. A single investment made today, earning 5% annual interest, worth $4,400 at the end of 5 years is $__3,447.52____.

B. The present value of $4,400 to be received at the end of 5 years, the discount rate is 5% is__$3,447.52____.

C. The most you would pay today for a promise to repay you $4,400 at the end of 5 years if your opportunity cost is 5% is $__3,447.52___.​

5.

A. The annual interest rate is also called the discount rate or the opportunity cost.

B. In all three​ cases, you are solving for the present​ value, PV​, which is ​$3,447.52.

Step-by-step explanation:

You will need to invest $3,447.52 at the beginning to reach the future value of $4,400.00.

FV (Future Value) $4,400.00

PV (Present Value) $3,447.512

N (Number of Periods) 5.000

I/Y (Interest Rate) 5.000%

PMT (Periodic Payment) $0.00

Starting Investment $3,447.52

Total Principal $3,447.52

Total Interest $952.48