Question

Compute the present value of $1,400 paid in three years using the following discount rates: 7 percent in the first year, 8 percent in the second year, and 9 percent in the third year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

(1) If discount rate is 7%, present value of $1,400 paid in three years is $3,674.04

(2) If discount rate is 8%, present value of $1,400 paid in three years is  $3,607.94

(3)If discount rate is 9%, present value of $1,400 paid in three years is  $3,543.81

Explanation:

We can use excel or manually calculate as below:

(1) Discount rate is 7%:

= $1400/(1+7%)^3+$1400/(1+7%)^2+$1400/(1+7%) = $3,674.04

(2) Discount rate is 8%:

= $1400/(1+8%)^3+$1400/(1+8%)^2+$1400/(1+8%) = $3,607.94

(3) Discount rate is 9%:

= $1400/(1+8%)^3+$1400/(1+9%)^2+$1400/(1+9%) = $3,543.81

I attached the calculation in excel for your reference.

Download xlsx