Compute the present value of $9,000 paid in four years using the following discount rates: 4 percent in year 1, 5 percent in year 2, 4 percent in year 3, and 3 percent in year 4.
A) $7,693.95
B) $8,543.26
C) $9,000.00
D) $10,823.01

Question

Quizplus · Accepted Answer

To compute the present value of $9,000 paid in four years with varying discount rates each year, we apply the formula for present value (PV) using each year's discount rate successively. The calculation is as follows:Year 4: $9,000 / (1 + 0.03) = $8,737.86Year 3: $8,737.86 / (1 + 0.04) = $8,402.75Year 2: $8,402.75 / (1 + 0.05) = $8,002.62Year 1: $8,002.62 / (1 + 0.04) = $7,693.95Therefore, the present value is $7,693.95.

Compute the Present Value of $9,000 Paid in Four Years