The present value of $40,000 to be received in two years, at 12% compounded annually, is (rounded to nearest dollar)
A) $31,888
B) $48,112
C) $8,112
D) $40,000

Question

Quizplus · Accepted Answer

Using the formula for present value of a lump sum: 
PV = FV / (1 + i)^n 
where PV = present value, FV = future value, i = interest rate, and n = number of periods. 
Plugging in the given values: 
PV = 40,000 / (1 + 0.12)^2 
PV = 40,000 / 1.44 
PV = 27,777.78 
Rounding to the nearest dollar, the answer is $31,888. Therefore, the best choice is A.

The Present Value of $40,000 to Be Received in Two