SOLUTION: An investment will pay 7800 dollars at the beginning of 2001, and 3800 dollars at the beginning of 2005. What is the present value of the investment at the beginning of 1998, assum

Question 1188386: An investment will pay 7800 dollars at the beginning of 2001, and 3800 dollars at the beginning of 2005. What is the present value of the investment at the beginning of 1998, assuming an effective interest rate of 6 percent
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
present value year is the beginning of 1998.

investment at the beginning of 2001 will be divided by 1.06 ^ (2001 - 1998) = 1.06 ^ 3.

that would be 7800 / 1.06 ^ 3 = 6549.030408.

investment at the beginning of 2005 will be divided by 1.06 ^ (2005 - 1998) = 1.06 ^ 7.

that would be 3800 / 1.06 ^ 7 = 2527.217032.

the present value is equal to 6549.030408 + 2527.217032 = 9076.247439.

that's your solution.

here's what it looks like in excel.

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