Compute the present value of $1,150 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Business

Janelle Hodge

18 April, 20:03

Compute the present value of $1,150 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Answers (1)

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Kathryn Morrison · Answer 1

The present value is $938.82

Explanation:

Giving the following information:

Compute the present value of $1,150 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year.

We need to discount the final value of $1,150 for each discount rate starting in year 3.

PV = FV / (1+i) ^n

Year 3 = 1,150/1.08 = 1,064.81

Year 2 = 1,064.81/1.07 = 995.15

Year 1 = 995.15/1.06 = 938.82

The present value is $938.82