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Asked Dec 20, 2019
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Tommy John is going to receive $1,000,000 in three years. The current market rate of interest is 10%.
a. Using the present value of $1 table in Exhibit 8, determine the present value of this amount compounded annually.
b. Why is the present value less than the $1,000,000 to be received in the future?

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determine the present value of this ...

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Calculate the present value of $1,000,000 (Future amount). (Future amount x Present value of $1 for 3 periods at 10% = $1,000,000 × 0.75131 = $751,310 Present value Note: The present value factor for 3 periods at 10% interest would be 0.75131 (Refer $1 Table in Exhibit 8 in the chapter for present value factor).

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