The present value of a $1000 payment received 2 years from now at 5% annual interest will be less than $900 because of
A)taxes.
B)compounding.
C)withholding.
D)double jeopardy.

Question

Quizplus · Accepted Answer

The present value of a future payment is reduced due to the effect of compounding. At 5% interest, the future value of $1000 in two years would be $1,102.50. Therefore, the present value of $1000 received in two years would be less than $900. Taxes and withholding would not be a factor in determining the present value of a future payment, and double jeopardy is not relevant to finance.

The Present Value of a $1000 Payment Received 2 Years