You will receive $6,800 three years from now. The discount rate is 10 percent.
a. What is the value of your investment two years from now? Multiply $6,800 x .909 ( one year’s discount rate at 10 percent).
b. What is the value of your investment one year from now? Multiply your answer to part a by .909 (one year’s discount rate at 10 percent).
c. What is the value of your investment today? Multiply your answer to part b by .909 (one year’s discount rate at 10 percent).
d. Confirm that your answer to part c is correct by going to Appendix B (present value of a $1) for n = 3 and I = 10% multiply this tabular value by $6,800 and compare your answer to part c. There may be a slight difference due to rounding.