Question

Question: You will receive \(6,800 three years from now. The discount rate is 10 percent. d. Use the formula PV 5 FV 3 _____ 1 (1 1 i) n to find the present value of \)6,600 received three years from now at 10 percent interest.

Short answer

Answer

The present value is $4,958.68.

Step-by-step solution

Identification of the required information

Future Value (FV) = $6,600

Interest Rate (i) = 10%

Period (n) = 3 years

Present value (PV)

$$\begin{gathered} \mathit{P}\mathit{V}\mathbf{=}\frac{\mathbf{F}\mathbf{V}}{{\left(1+i\right)}^{\mathbf{n}}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{600}}{{\left(1+10\%\right)}^{\mathbf{3}}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{958}\mathbf{.}\mathbf{68} \end{gathered}$$