Which of the following is correct if the interest rate is 6 percent?
A)$215 to be received a year from today has a present value of over $200;$420 a year from now has a present value over $400.
B)$215 to be received a year from today has a present value of over $200;$420 a year from now has a present value under $400.
C)$215 to be received a year from today has a present value of under $200;$420 a year from now has a present value over $400.
D)$215 to be received a year from today has a present value of under $200;$420 a year from now has a present value under $400.

Question

Quizplus · Accepted Answer

The present value of $215 to be received a year from today is calculated as PV = FV/(1+i) where i is the interest rate (6%) as a decimal, FV is future value ($215), and PV is the present value. 
So, PV = 215/(1+0.06) = $203.77 (rounded to the nearest cent).
This is greater than $200, so choice A and C are ruled out.
Similarly, the present value of $420 to be received a year from now is calculated as PV = FV/(1+i) where i is the interest rate (6%) as a decimal, FV is future value ($420), and PV is the present value.
So, PV = 420/(1+0.06) = $396.23 (rounded to the nearest cent).
This is under $400, so choice D is ruled out.
Therefore, choice B is the correct answer.

Which of the Following Is Correct If the Interest Rate