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Chapter 3

Question 5

Discounting using tables

Calculate the present value of $40,000 discounted at 9% for 4 years.

PV = future value × discount factor

Using the formula

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PV = $40,000 × 1.09 = $28,337

From tables, discount factor for 9% and 4 years is 0.708

PV = $40,000 × 0.708 = $28,320

NB: the only difference is roundings. Either method is acceptable for the exam.

Illustrations and further practice

Now try TYU question 5 from Chapter 3

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