In three years when he is discharged from the Air Force Stev

In three years, when he is discharged from the Air Force, Steve wants to buy an $18,000 power boat. Required: What lump-sum amount must Steve invest now to have the $18,000 at the end of three years if he can invest money at: (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

Solution

Note: assume that he can invest monet at : (a) ten percent (b) Fourteen percent To compute the amount of investment today (present value), to derive the amount to receive in future Investment value x discount factor = present value Invest value = present value / discount factore a ten perscent = 25,000/2.4587 $10,052 b Fourteen percent = 25,000/2.322 $10,767 Using the financial calculator for discounting factor, or use the available chart