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Discounting and investment appraisal

Question 7

Discounting using tables

Calculate the present values of the following amounts:

(1) $5,000 payable in 5 years’ time with a rate of 6%

(2) $99,000 payable in 9 years’ time with a rate of 3%

(3) $55,000 payable in 12 years’ time with an interest rate of 4.5%

Using tables

(1) P = $5,000 × 0.747 = $3,735

(2) P = $99,000 × 0.766 = $75,834

(3) Tables only contain whole numbers for discount factors, so can’t be done

Illustrations and further practice

Now read illustrations 4 and 5 and try TYU 9 from Chapter 7.

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