If the annual interest rate is 5%,the net present value of receiving $550 in the next year is:
A)$550
B)$523.80
C)$577.50
D)$500

Question

Quizplus · Accepted Answer

To calculate the net present value, we need to discount the future amount by the annual interest rate.

Net Present Value = Future Value / (1 + Annual Interest Rate)^Number of Years

Number of years is 1 since we are calculating for the next year.

Net Present Value = 550 / (1 + 5%)^1 
Net Present Value = 550 / 1.05 
Net Present Value = $523.80

Therefore, the best choice is B.

If the Annual Interest Rate Is 5%,the Net Present Value