Asked by Nabil Abdulkadir on Jul 15, 2024
Verified
Assume the current interest rate is 20%. The present value of $900 in one year would be
A) $180.
B) $450.
C) $750.
D) $1,080.
Present Value
The value today of a future monetary sum or sequence of cash inflows, calculated with a defined return rate.
Interest Rate
The rate of a loan designated as interest to the borrower, typically represented as an annual percentage of the loan's unpaid balance.
- Apprehend the present value concept and the mechanism for computing it for forthcoming financial returns and costs.
- Decode the relationship relating to interest rates and the present time-adjusted value of future fiscal streams.
Verified Answer
OS
Omaima SalemJul 20, 2024
Final Answer :
C
Explanation :
The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. Here, FV = $900, r = 20% or 0.20, and n = 1. So, PV = $900 / (1 + 0.20) = $900 / 1.20 = $750.
Learning Objectives
- Apprehend the present value concept and the mechanism for computing it for forthcoming financial returns and costs.
- Decode the relationship relating to interest rates and the present time-adjusted value of future fiscal streams.