If Joel Earns a 6 Percent After-Tax Rate of Return

question 121

Multiple Choice

If Joel earns a 6 percent after-tax rate of return, $5,000 received in two years is worth how much today? Use Exhibit 3.1. (Round discount factor(s) to three decimal places.)

• A)$5,000
• B)$4,790
• C)$4,450
• D)$5,300
• E)None of the choices are correct.

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Definitions:

Net Cash Flow

The amount of cash generated or spent over a specific period, typically the result of operating, investing, and financing activities.

Present Value

The value today of a future payment, or series of future payments, discounted at some appropriate interest rate.

Earnings Rate

The rate at which an investment or savings account generates income, usually expressed as a percentage of the principal.

Compound Interest

Interest calculated on the initial principal, including all of the accumulated interest from previous periods on a deposit or loan.