The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold pe
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Answer:
a.The present value is $55.39 comma 000
b.The future value is $61.05 comma 000
Explanation:
a. the present value for this windfall of the investment will be calculated using the present value formula which is
Pv depicts the present value which we are looking for,
Fv is the future value of the payments the individual receives which are $10 comma 0000 , $20 comma 000 and $30 comma 000.
i represents the interest rate per period which is 3.5%.
then we substitute these values on the above mentioned formula (values in comma 000):
Pv= $10/(1+3.5%) + $20/(1+3.5%)^2 + $30/(1+3.5%)^3
=$55.39 comma 000
that is the present value so we actually added the different present values for the amounts of the future values cause we get them in different times and they not the same.
b. we will use the future value formula to get the future value of the windfall which is
which the values still represent the above mentioned values so we substitute ( values in comma 000):
Fv= $10(1+3.5%)^1 + $20(1+3.5%)^2+ $30
= $61.05 comma 000
we add future values for the three different amounts but we are told that we need to calculate the windfall value at the date of the last payment so $30 comma 000 will not accumulate any interest because we they will do that payment on the day they say we must calculate the value of the windfall on.