Maria Addai has been offered a future payment of $750 two years from now. If she can earn an annual rate of 6.5 percent, compounded daily, on her investment, what should she pay for this investment today?

Maria Addai has been offered a future payment of $750 two years from now. If she can earn an annual rate of 6.5 percent, compounded daily, on her investment, what should she pay for this investment today?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Expert Solution

Formula

PV = FV / [(1+r)^n]

PV = Present value

FV = Future Value = $ 750

r= interest rate = 6.5%

n= no. of years

since, its compounded daily, r is substituted with r/365 & n with n*365

i.e, PV = FV / [(1+r/365)^(n*365)]

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