You walk into the bank and see a sign advertising 2-year CDs with a return of 4% per year. You have been “sitting” on some cash ($5,000) for a little while and decide to invest it in the CD.
1. How many years would it take you to double your money, if you could invest it and earn 8% per year?
2. What price should you be willing to pay (i.e. what is the present value) for an investment that delivers $1,000 in 3 years, if your required return is 6% per year? Do NOT put the dollar sign into your answer. Just put in the number.