Question

Maddy works at Burgers R Us. Her boss tells her that if she stays with the company for five years, she will receive a bonus of $6,000. With an annual discount rate of 8%, calculate the value today of receiving $6,000 in five years.

Answer 1

Answer:

$4,038

Explanation:

Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.

Present Value = Future Value  x (1/  ( 1 + interest rate ) ^ number of periods)

Present Value = 6,000 x (1/ ( 1 + 0.08) ^ 5)

Present Value  = 6,000 x 0.68058

Present Value = $4,038