a. If the present value of $143 is $129, what is the discount factor? b. If...

a. If the present value of $143 is $129, what is the discount factor?

b. If that $143 is received in year 5, what is the interest rate?

Expert Solution

Answer : (a) Calculation of Discount Factor:

Discount Factor = 129 / 143

= 0.9020979021

(b.) Calculation of Interest Rate

Future Value = Present Value * (1 + rate) ^number of years

143 = 129 * ( 1 + rate) ^ 5

1 + Rate = [(143 / 129)^(1/5)]

On solving

Rate = 2.08%

jeff jeffy answered 2 years ago

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