The government expects to receive $2.5 million dollars in three years. The government needs the money...
The government expects to receive $2.5 million dollars in three years. The government needs the money now so it sells the rights to a third party who charges 12%. How much does the government receive?
Homework Answers
this can be known using present value of the amount:
government will receive : the present value of $2.5 million discounted at 12.5% for 1 year.
=> 2.5 million * 1 /(1+r)^n
here,
r =12.5% =>0.125.
n = 3
=>2.5 million * 1 /(1.125)^3
=>2.5 million*0.70233196
=>$1.7558299.million
=>$1.76 million....(rounded to two decimals)
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