A lump sum of $25,000 is due in 4-years and 5 months.What is the present value of this amount using the practical method if the interest rate is j₂ = 8%? A)$17,681.77 B)$17,679.86 C)$17,677.99 D)$17,685.52

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Quizplus · Accepted Answer

The practical method for calculating the present value of a lump sum due in the future involves discounting the future amount by the interest rate over the period until the payment is due. Given an interest rate of 8% and a period of 4 years and 5 months (which is equivalent to 4.4167 years when converting months into a fraction of a year), the present value (PV) can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($25,000), r is the annual interest rate (0.08), and n is the number of years. Plugging these values into the formula gives a present value of approximately $17,681.77, making option A the correct choice.

A Lump Sum of $25,000 Is Due in 4-Years and 5