Present value (with changing interest rates). Marty has been offered an injury settlement of $16 comma...
Present value (with changing interest rates). Marty has been offered an injury settlement of $16 comma 000 payable in 3 years. He wants to know what the present value of the injury settlement is if his opportunity cost is 4.5%. (The opportunity cost is the interest rate in this problem.) What if the opportunity cost is 8%? What if it is 10.5%?
Homework Answers
Present value=cash flow*Present value of discounting factor(rate%,time period)
At 4.5%:
Present value=16000/1.045^3
=$16000*0.876296604
=$14020.75(Approx).
At 8%:
Present value=16000/1.08^3
=$16000*0.793832241
=$12701.32(Approx)
at 10.5%:
Present value=16000/1.105^3
=$16000*0.741162036
=$11858.59(Approx).
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Present value (with changing interest rates). Marty has been
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