You are considering investing
in a security that will pay you $1,000 in 30 years.
If the appropriate discount rate is 10 percent, what is the present value of this investment?
Tristan,
Can you please give details on how you came up with this answer?
To calculate the present value of an investment, we need to discount the future value by the appropriate discount rate. In this case, the appropriate discount rate is 10 percent.
The formula to calculate present value is:
PV = FV / (1 + r)^n
Where:
PV = Present Value
FV = Future Value
r = Discount rate
n = Number of years
Plugging in the given values into the formula:
PV = $1,000 / (1 + 0.10)^30
Now, we can calculate the present value using a calculator or spreadsheet:
PV = $1,000 / 1.10^30
PV = $1,000 / 17.449
PV ≈ $57.29 (rounded to the nearest cent)
Therefore, the present value of this investment, using a discount rate of 10 percent and considering a payment of $1,000 in 30 years, is approximately $57.29.
The present value of this investment is $3.33 per year (if you are trying to pay a little each year proceeding the last)
Hope this helps and if I'm not correct you should see someone correct me pretty quickly.