Use discounting tables to determine the value today of an opportunity to receive $5,000 at the end of each of the next four years. Assume an interest rate of 8%.

Question

Quizplus · Accepted Answer

Using a discounting table for an 8% interest rate and four years, we find the discount factor for each year:

- Year 1: 0.926
- Year 2: 0.857
- Year 3: 0.794
- Year 4: 0.735

To calculate the value today of receiving $5,000 at the end of each of the next four years, we multiply each $5,000 by its corresponding discount factor and sum the results:

$5,000 x 0.926 = $4,630 
$5,000 x 0.857 = $4,285 
$5,000 x 0.794 = $3,970 
$5,000 x 0.735 = $3,675

Adding these amounts together, we get a present value of $16,560. Therefore, the best choice is C.

Use Discounting Tables to Determine the Value Today of an Opportunity