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30 June, 19:58

Your boss leaves you a note, asking you to determine the present value of a $125,000 payment to be made in four years assuming a discount rate of 16%. However, you misread her handwriting, and mistakenly thought the discount rate you were supposed to use was 6%. What is the dollar value of the mistake in your answer because you used the wrong discount rate?

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  1. 30 June, 23:21
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    Answer: $198023.42 Explanation: PV=FVx[1: (1*i) ^ PV = present value FV=$25000 I=6% = 0.06 ^=4years PV=$250,000*[1: (1-0.06) ^4 PV=$250,000*[1: (1.06) ^4 PV=$250,000*[1:1.26247696] PV=$250000*[0.7920936632] PV=198,023.42 The dollar value of the mistake is $198,023.42
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