question archive Determine the present value of $750,000 to be received in three years, using an interest rate of 12%, compounded annually
Determine the present value of $750,000 to be received in three years, using an interest rate of 12%, compounded annually
Subject:FinancePrice:2.89 Bought3
Determine the present value of $750,000 to be received in three years, using an interest rate of 12%, compounded annually.
a. Use the present value table in Exhibit 4.
b. Why is the present value less than the $750,000 to be received in the future?
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$750,000 × 0.71178 = $533,835
This is because cash on hand today can be invested to earn income. If $533,836 is invested at 12%, it will be worth $750,000 at the end of three years.
