Answer the questions with appropriate formulae in a paper neatly to upload in the moodle

Economics Nov 07, 2020

Answer the questions with appropriate formulae in a paper neatly to upload in the moodle. 1.) Determine whether receiving BD 2,042 today is equivalent to receiving BD 3,000 after five (5) years, assuming that the interest rate per annum is 8%. What is the equivalent of this amount after year 3?

Expert Solution

PRESENT VALUE = BD 2042

INTEREST RATE PER ANNUM = 8%

FUTURE VALUE = PV ( 1+r)^n

PV = PRESENT VALUE

r = interest rate

n = number of years

FUTURE VALUE = 2042(1+8%) ^5 = BD 3,000

YES, RECEIVING BD 2,042 TODAY IS EQUIVALENT TO RECEIVING BD 3000 AFTER 5 YEARS.

EQUIVALENR AMOUNT AFTER 3 YAERS WOULD BE

PRESENT VALUE = BD 2042

INTEREST RATE PER ANNUM = 8%

FUTURE VALUE = PV ( 1+r)^n

PV = PRESENT VALUE

r = interest rate

n = number of years

FUTURE VALUE = 2042(1+8%) ^3 = BD 2572

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