Question

An investment will pay you $42,000 in 8 years. If the appropriate discount rate is 6.8 percent compounded daily, what is the present value? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

We simply need to find the PV of a lump sum using the equation:

PV = FV / (1 + r)^t

It is important to note that compounding occurs daily. To account for this, we will divide the interest rate by 365 and multiply the number of periods by 365. Doing so, we get:

PV = $42,000 / [(1 + 0.068/365)⁸⁽³⁶⁵⁾] = 24,378.96