Question

Investment X offers to pay you $5,200 per year for eight years, whereas Investment Y offers to pay you $7,300 per year for five years. Calculate the present value for Investment X and Y if the discount rate is 5 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
Present value Investment X $ Investment Y $ Calculate the present value for Investment X and Y if the discount rate is 15 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Answer 1

Answer:

Results are below.

Explanation:

Giving the following information:

Investment X:

Annual payment= $5,200 per year for eight years

Investment Y;

Annual payment= $7,300 per year for five years

Discount rate= 15%

To calculate the present value, first, we determine the future value. Then the present value.

FV= {A*[(1+i)^n-1]}/i

A= annual payment

PV= FV/(1+i)^n

Investment X:

FV= {5,200*[(1.15^8) - 1]} / 0.15

FV= $71,379.46

PV= 71,379.46/1.15^8

PV= $23,334.07

Investment Y:

FV= {7,300*[(1.15^5) - 1]} / 0.15

FV= $49,219.38

PV= 49,219.38/1.15^5

PV= $24,470.73