You will receive $6,800 three years from now The discount rate is 10 percent a What is the value of your investment two years from now Multiply $6,800 909 (one years discount rate at 10 percent) b What is the value of your investment one year from now Multiply your answer to part a by 909 (one year...

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You will receive $6,800 three years from now. The discount rate is 10 percent. a. What is

Question:

You will receive $6,800 three years from now. The is 10 percent.
a. What is the value of your investment two years from now? Multiply $6,800 × .909 (one year’s at 10 percent).
b. What is the value of your investment one year from now? Multiply your answer to part a by .909 (one year’s at 10 percent).
c. What is the value of your investment today? Multiply your answer to part b by .909 (one year’s at 10 percent).
d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n = 3 and i = 10%. Multiply this tabular value by $6,800 and compare your answer to part c. There may be a slight difference due to rounding.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...