Asked by TRINH NGUYEN PHUONG on Jun 29, 2024
Verified
If the interest rate is 12%, the current market value of $1 to be delivered in one year is
A) $0.89.
B) $0.95.
C) $1.00.
D) $1.15.
Market Value
The market's current rate for buying or selling assets or services.
Interest Rate
The segment of a loan that incurs interest charges for the borrower, usually delineated as an annual percentage of the loan's remaining amount.
- Acquire knowledge on the concept of present value and learn how to compute it for future financial benefits and costs.
- Acquire knowledge on the relationship involving interest rates and the contemporaneous discounted worth of prospective financial streams.
Verified Answer
GH
gracie henriksonJun 30, 2024
Final Answer :
A
Explanation :
The current market value of $1 to be delivered in one year at a 12% 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 (12% or 0.12), and n is the number of periods (1 year). Thus, PV = $1 / (1 + 0.12)^1 = $1 / 1.12 = $0.89.
Learning Objectives
- Acquire knowledge on the concept of present value and learn how to compute it for future financial benefits and costs.
- Acquire knowledge on the relationship involving interest rates and the contemporaneous discounted worth of prospective financial streams.