What is the price you would be willing to pay today for an IOU for $500 due in one year if you want to earn at least 16%?
A)$480.00
B)$431.03
C)$450.00
D)$395.33
E)$418.23

Question

Quizplus · Accepted Answer

To calculate the price we need to use the following formula:
Price = Face Value / (1 + interest rate)^time
Price = $500 / (1 + 0.16)^1
Price = $500 / 1.16
Price = $431.03
Therefore, the best choice is option B as it meets the requirement of earning at least 16%.

What Is the Price You Would Be Willing to Pay