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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Compute the following:

  1. a. The present value of $25,000 each year for 4 years at a 7 percent interest rate
  2. b. The present value of $152,000 each year for 5 years at a 6 percent interest rate
  3. c. The present value of $60,000 each year for 10 years at a 6.5 percent interest rate

(a)

To determine

Calculate the present value.

Explanation

The present value (PV) can be calculated using the formula given below:

PV=An(1+i)n        (1)

Here

An is the actual amount of income.

 i is the interest rate.

n is the number of years in the future.

Since An is $25,000, i is 7%, and n is 4 years, the value of PV can be calculated using Equation-1 as follows:

PV=$25,000(1+0.07)1+$25,000(1+0

(b)

To determine

Calculate the present value.

(c)

To determine

Calculate the present value.

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