If Scott earns a 12 percent after-tax rate of return, $15,000 today would be worth how much to Scott in two years? Use future value of $1.(Round discount factor(s)to five decimal places.)

Question

Quizplus · Accepted Answer

First, we need to calculate the discount factor using the after-tax rate of return of 12 percent:

Discount factor = 1 / (1 + after-tax rate of return)
Discount factor = 1 / (1 + 0.12)
Discount factor = 0.8929 (rounded to five decimal places)

Next, we can use the future value of $1 formula:

Future value = Present value x (1 + after-tax rate of return) ^ number of periods
Future value = $15,000 x (1 + 0.12) ^ 2
Future value = $15,000 x 1.2544
Future value = $18,816 (rounded to the nearest dollar)

Therefore, $15,000 today would be worth $18,816 to Scott in two years, option D is the best choice.

If Scott Earns a 12 Percent After-Tax Rate of Return