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s).  Marty has been offered an injury settlement of ​$15 comma 000 payable in 5 years. He wants to know what the present value of the injury settlement is if his opportunity cost is 3.5 ​%. ​ (The opportunity cost is the interest rate in this​ problem.) What if the opportunity cost is 7.5 ​%? What if it is 11.5 ​%?

Respuesta :

Answer and Explanation:

The computation of the present value in each situation is as follows:

As we know that

Present value = Future value ÷ (1 + rate of interest)^time period

When the rate is 3.5%, the present value is

= $15,000 ÷ (1 + 3.5%)^5

= $12,630

When the rate is 7.5%, the present value is

= $15,000 ÷ (1 + 7.5%)^5

= $10,448.38

And, When the rate is 11.5%, the present value is

= $15,000 ÷ (1 + 11.5%)^5

= $8,703.96