Answer :
You should be willing to accept approximately $6,179.15 today in exchange for the future payment of $118,000 in 20 years, assuming an interest rate of 17 percent.
To determine the present value of a future payment, we can use the concept of discounting, which takes into account the time value of money.
The present value represents the amount of money you should be willing to accept today in exchange for the future payment of $118,000 in 20 years.
Using the formula for the present value (PV) of a future payment, we can calculate it as:
[tex]PV = FV / (1 + r)^n[/tex]
Where:
PV = Present value
FV = Future Value
r = Interest rate
n = Number of periods
In this case, the future value (FV) is $118,000, the interest rate (r) is 17 percent (or 0.17), and the number of periods (n) is 20 years.
Plugging these values into the formula, we have:
[tex]PV = 118,000 / (1 + 0.17)^{20[/tex]
Calculating this expression, we find:
PV ≈ [tex]118,000 / (1.17)^{20[/tex] ≈ 118,000 / 19.084
Therefore, the present value is approximately $6,179.15.
To learn more about interest rates
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