Asked by Nicholas Maynard on Jun 22, 2024
Verified
If the interest rate is 10%, the current market value of $1 to be delivered in one year is
A) $0.91.
B) $0.99.
C) $1.00.
D) $1.10.
Market Value
The existing rate at which a service or asset might be sold or acquired in the market.
Interest Rate
The share of a loan attributed as interest to the borrower, commonly expressed as an annual rate of the outstanding loan amount.
- Grasp the idea of present value and understand the calculation process for future earnings and outlays.
- Delve into the link between interest rates and the present-day valuation of future cash receipts after discounting.
Verified Answer
CR
Christina RiveroJun 24, 2024
Final Answer :
A
Explanation :
The current market value of $1 to be delivered in one year, given a 10% interest rate, is calculated using the formula for present value: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($1 in this case), r is the interest rate (0.10), and n is the number of periods (1 year). Thus, PV = $1 / (1 + 0.10)^1 = $1 / 1.10 = $0.91.
Learning Objectives
- Grasp the idea of present value and understand the calculation process for future earnings and outlays.
- Delve into the link between interest rates and the present-day valuation of future cash receipts after discounting.