At which interest rate is the present value of $360 three years from today equal to about $310 today?
A)4.7 percent
B)5.1 percent
C)5.5 percent
D)5.9 percent

Question

Quizplus · Accepted Answer

We can use the present value formula:

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.

We are given that PV = $310, FV = $360, and n = 3. We need to solve for r:

310 = 360 / (1 + r)^3

(1 + r)^3 = 360 / 310

1 + r = (360 / 310)^(1/3)

r = (360 / 310)^(1/3) - 1

Using a calculator, we get:

r ≈ 0.051 or 5.1%

Therefore, the answer is (B).

At Which Interest Rate Is the Present Value of $360