At which interest rate is the present value of $95.40 one year from today equal to $90 today?
A)4 percent
B)5 percent
C)6 percent
D)7 percent

Question

Quizplus · Accepted Answer

We can use the present value formula to solve for the interest rate:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Plugging in the given values, we get:

90 = 95.40 / (1 + r)^1

Solving for r:

1 + r = 95.40 / 90
1 + r = 1.06
r = 0.06 or 6%

Therefore, the interest rate that makes the present value of $95.40 one year from today equal to $90 today is 6 percent.

At Which Interest Rate Is the Present Value of $95