XCompute the present value of $4,800 paid in two years using the following C4 A
ID: 2820639 • Letter: X
Question
XCompute the present value of $4,800 paid in two years using the following C4 A B Compute the present value of $4,800 paid in two years using the ollowing discount rates: 8 percent in the first year and 7 percent in the second year. (Do not round intermediate calculations and $ 4,800 Future value Number of years Interest rate first year Interest rate second year 8.00% 7.00% 10 Complete the following analysis. Do not hard code values in your calculations 15 Value two years from today Value one year from today Present value 18Explanation / Answer
1) Value two years from today = $ 4,800 as w received this amount in year 2 only.
Excel Formula = D7
2) Value one year from today = PV of 4,800 at year 1. = Discount the $4,800 using the year 2 discount rate (7%) so that we can obtain the value of $4,800 in year 2 to its discounted value in year 1
Therefore, Value one year from today = 4,800/(1+7%) = 4800/1.07 = $ 4,485.98
Excel Formula = D7/(1+D10)
3) Present Value = Discounting the year 2 value of $ 4,800 first to year 1 using the Year (1-2) interest rate i.e second interest rate of 7% and then further discounting it to year 0 by using the Year (0-1) interest rate i.e first-year interest rate of 8%.
Therefore Present Value = [4800/(1+7%)]/(1+8%) = 4800/(1.07*1.08) = $ 4,153.69
Excel Formula = D7/((1+D10)*(1+D9))
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