(1) Misty needs to have $20,000 at the end of 7 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 7 years until it grows to $20,000, but she wonders what sort of investment return she will need to earn to reach her goal. Use your calculator or spreadsheet to figure out the annually compounded rate of return needed if she can invest $13,800 today.

(2) Present value concept

a.What single investment made today, earning 13% annual interest, will be worth $5,700 at the end of 7 years?

b.What is the present value of $5,700 to be received at the end of 7 years if the discount rate is 13 %?

c.What is the most you would pay today for a promise to repay you $5,700 at the end of 7 years if your opportunity cost is 13%?

d. Compare, contrast, and discuss your findings in part a through c.