You receive $5000 three years from now. The discount rate is 8 percent.
What is the value of your investment two years from now? (Multiply 5000 by .926 (one year discount rate at 8%)
Will it be worth $9,260?
no the answer would be 4,630
To calculate the value of your investment two years from now, you need to discount the future value of $5000 by the present value discount factor for two years. The present value discount factor for two years can be calculated by multiplying the discount rate (8%) by itself (0.08 * 0.08), which equals 0.0064.
So, the present value discount factor for two years is 0.0064.
To find the value of your investment two years from now, you need to multiply the future value ($5000) by the present value discount factor for two years (0.0064).
5000 * 0.0064 = $32
Therefore, the value of your investment two years from now would be $32, not $9,260.