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Your local travel agent is advertising an upscale winter vacation package for travel three years from now to Antarctica. The package requires that you pay $20,000 today, $35,000 one year from today, and a final payment of $45,000 on the day you depart three years from today. What is the cost of this vacation in today's dollars if the discount rate is 9.75 percent?

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facundobuzzetti

Answer:

Total cost of vacation= $89,250.37

Explanation:

Giving the following information:

The package requires that you pay $20,000 today, $35,000 one year from today, and a final payment of $45,000 on the day you depart three years from today.

To calculate the present value, we need to use the following formula:

PV= FV/ (1+i)^n

i= 0.0975

Year0= 20,000

Year 1= 35,000/1.0975= 31,890.66

Year 2= 45,000/1.0975^2= 37,359.71

Total= $89,250.37

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