a. What is the present value of $240,000 to be
received after 30 years with a 16 percent discount rate? Use
Appendix B as an approximate answer, but calculate your final
answer using the formula and financial calculator methods.
(Do not round intermediate calculations. Round your final
answer to 2 decimal places.)
b.
Would the present value of the funds in part a be enough
to buy a $2,800 concert ticket?
No
Yes
Solution:
a) Given,
Future value = $240,000
Period (t) = 30
Discount rate (r) = 16%
Present value = Future value ( 1 ÷ (1+r)^t)
Present value = 240,000 ( 1 ÷ (1+0.16)^30)
Present value = 240,000 (1÷ 85.85)
Present value = 240,000 (0.01165)
Present value = $2,795.57
b) answer = yes
As the present value of funds in part a. is less than $2,800. So it is enough to buy a $2,800 concert ticket.
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