Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:

Instructions are below.

Explanation:

Giving the following information:

Your grandmother has promised to give you $10,000 when you graduate from college.

I will assume an interest rate (discount rate) of 8% compounded annually.

To calculate the present value, we need to use the following formula:

PV = FV / (1+i) ^n

FV = 10,000

i = 0.08

n = 2

PV = 10,000 / (1.08^2)

PV = $8,573.39