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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 20E
Textbook Problem
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Assume the same data as in Exercise 14-19, except that the current interest rate is 10%.

Chapter 14, Problem 20E, Assume the same data as in Exercise 14-19, except that the current interest rate is 10%. Will the Will the present value of your winnings using an interest rate of 10% be more than the present value of your winnings using an interest rate of 6%? Why or why not?

To determine

Calculate the increase or decrease in present value of winnings using an interest rate of 10% and 6%.

Explanation of Solution

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.

The present value of winnings using an interest rate of 10% will be not more than the present value of winnings using an interest rate of 6% because the winnings are affected by the greater interest rate.

The present value of winnings using an interest rate of 10% is $36,867,420 ($6,000,000×6

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Chapter 14 Solutions

Financial Accounting
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