Future Value and Present Value Are Two Key Business Tools

question 14

Essay

Future value and present value are two key business tools.
Required:
Ignoring income taxes, answer the following independent questions:
A. Your best friend won the state lottery and has offered to give you $15,000 at the end of eight years (after he has made his first million). You figure that if you had the money now, you could invest it at a rate of 10% compound annually. What is the value today of your friend's future gift?
B. Suppose that you invest $11,000 today in an account that bears interest at the rate of 6% compounded annually. What will your investment grow to at the end of seven years?
C. Suppose that your best friend won the state lottery and promised to give you $9,000 per year for five years. The first payment will be made at the end of 20x1. Using a 12% annual compound discount rate, what is the value of these payments at the beginning of 20x1?
D. Suppose that you invest $2,000 at the end of each year for nine years in an investment that provides a return of 8% compounded annually. What will be the value of your investment at the end of nine years?

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Definitions:

Dumping

A firm’s or an industry’s sale of products on the world market at prices below its own cost of production.

Natural Comparative Advantage

A situation where a country or region can produce a particular good or service at a lower opportunity cost compared to other countries or regions.

Factor Endowments

Refers to the quantity and quality of resources a country or region has available, such as labor, land, and capital.

Heckscher-Ohlin Theorem

An economic theory stating that countries export what they can most efficiently and abundantly produce.