Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 4 percent?
A)$500/(1.04)²
B)$500 - 500(1.04)²
C)$500 - $500/(.04)²
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The formula for present value of a future payment is PV = FV/(1+r)^n, where PV is present value, FV is future value, r is the interest rate, and n is the number of periods. Plugging in the values, we get PV = $500/(1.04)^2 = $458.66. Therefore, option A is correct. Option B subtracts the future value from the present value, which is not correct. Option C reverses the formula by incorrectly dividing the future value by the square of the interest rate. Therefore, option C is incorrect.

Which of the Following Is the Correct Expression for Finding