Asked by Aishah Khalea on Jun 13, 2024
Verified
If the interest rate is 3 percent, to get back $500 in two years you would need to deposit ________ today.
A) $242.72.
B) $471.30.
C) $485.44.
D) $494.00.
Interest Rate
The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal.
- Understand the methodology for computing the future and present values of funds, taking into account prevailing interest rates.
Verified Answer
KP
Kelly PesciottaJun 19, 2024
Final Answer :
B
Explanation :
To calculate the present value of $500 received in two years at an interest rate of 3%, you use the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($500), r is the annual interest rate (0.03), and n is the number of years (2). Plugging in the numbers: PV = $500 / (1 + 0.03)^2 = $500 / 1.0609 = $471.30.
Learning Objectives
- Understand the methodology for computing the future and present values of funds, taking into account prevailing interest rates.