Using an interest rate of 5%, which figure has the largest present value
A)$5000.
B)$5050 to be received two years from now.
C)$5075 to be received three years from now.
D)$5500 to be received ten years from now.

Question

Quizplus · Accepted Answer

The present value (PV) of an amount of money is the current value of that amount that would be needed to produce the future value through investment at a given interest rate. The formula for calculating the present value is PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. Calculating the present value for each option: A) $5000 is already in present value form. B) PV = $5050 / (1 + 0.05)^2 = $4579.59 approximately. C) PV = $5075 / (1 + 0.05)^3 = $4389.39 approximately. D) PV = $5500 / (1 + 0.05)^10 = $3386.38 approximately. Therefore, option A, $5000, has the largest present value.

Using an Interest Rate of 5%, Which Figure Has the Largest