Asked by Amber Harris on Jun 18, 2024
Verified
If the interest rate is 15%, the current market value of $1 to be delivered in one year is
A) $0.87.
B) $0.91.
C) $1.00.
D) $1.15.
Market Value
The ongoing price for the transaction of assets or services within the marketplace.
Interest Rate
The percentage of a sum of money charged for its use, often expressed as an annual percentage rate.
- Master the concept of present value and the technique for its calculation in the context of future gains and financial obligations.
- Apprehend the interplay between interest rates and the present reduced value of forthcoming financial inflows.
Verified Answer
AR
Ayesha RaziqJun 24, 2024
Final Answer :
A
Explanation :
The current market value of $1 to be delivered in one year at a 15% 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 (15% or 0.15), and n is the number of periods (1 year). Thus, PV = $1 / (1 + 0.15)^1 = $1 / 1.15 = $0.87.
Learning Objectives
- Master the concept of present value and the technique for its calculation in the context of future gains and financial obligations.
- Apprehend the interplay between interest rates and the present reduced value of forthcoming financial inflows.