Asked by Jacob McMinn on Jun 09, 2024
Verified
About how much is the present value of $1 that will be paid to you in 3 years if the interest rate were 5%?
A) $1.14
B) $1.05
C) $1.00
D) $.95
E) $.86
Present Value
The current worth of a future sum of money or stream of cash flows, given a specified rate of return.
Interest Rate
The percentage at which interest is paid by a borrower for the use of money they borrow from a lender.
- Gain a comprehensive insight into the concept of present value, emphasizing its susceptibility to interest rate adjustments and temporal changes.
Verified Answer
TS
tejahnye sonnyJun 13, 2024
Final Answer :
E
Explanation :
The present value (PV) of $1 to be received in 3 years at an interest rate of 5% is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($1), r is the annual interest rate (0.05), and n is the number of years (3). Plugging in the values, we get PV = $1 / (1 + 0.05)^3 = $1 / 1.157625 = approximately $0.86.
Learning Objectives
- Gain a comprehensive insight into the concept of present value, emphasizing its susceptibility to interest rate adjustments and temporal changes.