Homework: Chapter 3 Homework Problems Score: 0 of 1 pt 9 of 20 (9 complete) HW S

Question

Homework: Chapter 3 Homework Problems Score: 0 of 1 pt 9 of 20 (9 complete) HW Score: 37.08%, 7 42 of 20 pts P 3-16 (similar to) E Question Hep The local electronics store is offering a promotion "1-year same as cash,"meaning home a S1 200 TV today, you will owe them S 1,200 in one year if your bank is offering 4 5% interest what is the true cost of the TV that you can buy a TV now, and wait a year to pay (with no interest) So, if you take to y today? The true cost of the TV to you today is (Round to the nearest cent ) 9 3 All parts showing 70

Explanation / Answer

Amount payable for T.V.after 1 year = $1,200

Interest on bank deposit = 4.5%

Since, $1,200 is payable after 1 year, hence it will be discounted at 4.5% to find out real cost of T.V. today.

Present value factor (PVF) = 1/(1 + r)n

  = 1/(1 + 0.045)1

= 1/1.045

= 0.9569

Present value = Future value x PVF

= 1,200 x 0.9569

= $1,148

Hence, real cost of T.V. is $1,148.

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