Use discounting tables to determine today's value of an investment that will provide a dividend of $1,000 at the end of each of the next five years and will be sold for $10,000 in five years time. Assume the required rate of return is 8%.

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To find the present value of the investment, we calculate the present value of the annual dividends and the present value of the sale price at the end of five years. The present value (PV) formula is PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods.1. For the dividends of $1,000 each year for five years, we use the annuity formula. The present value factor for an annuity at 8% for 5 years is approximately 3.9927. So, the present value of the dividends is $1,000 * 3.9927 = $3,992.70.2. For the sale price of $10,000 in five years, we discount it back to its present value. The present value factor for a single sum at 8% for 5 years is approximately 0.6806. So, the present value of the sale price is $10,000 * 0.6806 = $6,806.3. Adding the present values of the dividends and the sale price gives us the total present value of the investment: $3,992.70 + $6,806 = $10,798.70, which rounds to $10,803.

Use Discounting Tables to Determine Today's Value of an Investment