Present value conceptAnswer each of the following questions.

a. How much money would you have to invest today to accumulate $6,000 after 6 years if the rate of return on your investment is12%?

b. What is the present value of $6,000 that you will receive after 6 years if the discount rate is 12%?

c. What is the most you would spend today for an investment that will pay $6,000 in 6 years if your opportunity cost is

12%?

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

• The annual interest rate is also called the discount rate or the opportunity cost.

• In all threecases, the answer is $3,039.79. In part a, it is thepayment, PMT. In part b, it is the presentvalue, PV. In part c, it is the futurevalue, FV.

• In parts a and c, $6,000 is the futurevalue, FV. In part b, $6,000 is the presentvalue, PV. Therefore, parts a and c have the sameanswer, while part b has a different answer.

• In all threecases, you are solving for the presentvalue, PV, which is $3,039.79