Present value concept

Answer each of the following questions.

1. How much money would you have to invest today to accumulate $6,000 after 6 years if the rate of return on your investment is 12%?
2. What is the present value of $6,000 that you will receive after 6 years if the discount rate is 12%?
3. What would you be willing to spend today for an investment that will pay $6,000 in 6 years if your opportunity cost is 12%? If you could buy the investment for less than that, what would that imply about your rate of return?

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

1. A single investment made today, earning 12% annual interest, worth $6,000 at the end of 6 years is $ . (Round to the nearest cent.)
2. The present value of $6,000 to be received at the end of 6 years, if the discount rate is 12%, is $. (Round to the nearest cent.)

c. The most you would spend today for an investment that will pay $6,000 in 6 years if your opportunity cost is 12% is $___. (Round to the nearest cent.)

If you can buy the investment for less than $3,039.78 then your implied rate of return will be _____ than 12%

greater or less

d. Compare, contrast, and discuss your findings in part a through c. (Select all answers that apply.)

• A. In parts a and c, $6,000 is the future value, FV. In part b, $6,000 is the present value, PV. Therefore, parts a and c have the same answer, while part b has a different answer.
• B. The annual interest rate is also called the ditcount rate or the opportunity cost.
• C. In all three cases, you are solving for the present value, PV, which is $3,039.79.
• D. In all three cases, the answer is $3,039.79. In part a, it is the payment, PMT. In part b, it is the present value, PV. In part c, it is the future value, FV.