   Chapter 14, Problem 14.17EX

Chapter
Section
Textbook Problem

Present value of amounts dueTommy 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? (a) To determine Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. To calculate: The present value of$1,000,000 (Future amount).

Explanation

Calculate the present value of $1,000,000 (Future amount). Present value=(Future amount×Present value of$1for 3 pe

(b)

To determine

To explain: The reason why present value of $751,310 is less than the future value of$1,000,000.

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