Question

Present value​ (with changing interest​ rates).

Marty has been offered an injury settlement of ​$14 comma 000 payable in 3 years. He wants to know what the present value of the injury settlement is if his opportunity cost is 3​%. ​ (The opportunity cost is the interest rate in this​ problem.)

What if the opportunity cost is 7​%?

What if it is 12​%?

If​ Marty's opportunity cost is 3​%, what is the present value of the injury​ settlement? ​$ nothing ​(Round to the nearest​ cent.)

Answer 1

Answer:

present value = $12811.98

present value = $11428.17

present value = $9964.92

Explanation:

given data

injury settlement = ​$14,000

time = 3 year

opportunity cost = 3​%

opportunity cost = 7​%

opportunity cost = 12​%

solution

we will apply here Present value formula that is

present value = $\frac{future\ value}{(1+r)^t}$ ..............................1

put here value of opportunity cost rate we get

present value = $\frac{14000}{(1+0.03)^3}$

present value = $12811.98

and

present value = $\frac{14000}{(1+0.07)^3}$

present value = $11428.17

and

present value = $\frac{14000}{(1+0.12)^3}$

present value = $9964.92