Question
5. Your boss leaves you a note, asking you to determine the present value of a $50,000 payment to be made in eight years assuming
5. Your boss leaves you a note, asking you to determine the present value of a $50,000 payment to be made in eight years assuming a discount rate of 14%. However, you misread her handwriting, and mistakenly thought the discount rate you were supposed to use was 4%. What is the dollar value of the mistake in your answer because you used the wrong discount rate?
6. Your grandmother recently surprised you, and gave you $5,000 expressly for the purpose of starting your retirement savings. Her only stipulation is that you have to invest the money now, and not touch any of it for the next 35 years (at which point you plan to retire). What will the value of this account be at the end of the 35 years under each of the following return assumptions (annual compounding)? a) 5% per year b) 10% per year c) 15% per year
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