Question

Question: You will receive $6,800 three years from now. The discount rate is 10 percent. c. What is the value of your investment today? Multiply your answer to part b by (1/1.10).

Short answer

Answer

The value of investment today is $5,108.94.

Step-by-step solution

Identification of the required information

Value of investment one years from now (FV1) = $5,619.83

Interest Rate (i) = 10%

Discount factor = 1.10

Value of investment today (PV)

$$\begin{gathered} \mathit{P}\mathit{V}\mathbf{=}\frac{\mathbf{F}\mathbf{V}}{\mathbf{D}\mathbf{i}\mathbf{s}\mathbf{c}\mathbf{o}\mathbf{u}\mathbf{n}\mathbf{t}\mathbf{}\mathbf{f}\mathbf{a}\mathbf{c}\mathbf{t}\mathbf{o}\mathbf{r}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{619}\mathbf{.}\mathbf{83}}{\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{10}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{108}\mathbf{.}\mathbf{94} \end{gathered}$$