The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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The present value of $7,000 to be received in seven years at 7% compounded annually is
A)$3,430.
B)$6,657.
C)$4,361.
D)$7,000.

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
-
The present value of $7,000 to be received in seven years at 7% compounded annually is
A)$3,430.
B)$6,657.
C)$4,361.
D)$7,000.

Quizplus · Accepted Answer

Using Table 9-1, the present value factor for 7 years at 7% is 0.508. Therefore, the present value of $7,000 is calculated as: $7,000 x 0.508 = $3,556. However, this amount is in future value terms. To convert it to present value terms, we need to discount it further by multiplying with the present value factor for 7 years at 7%, which is 0.614. Therefore, the present value of $7,000 to be received in seven years at 7% compounded annually is $3,556 x 0.614 = $2,180. Thus the correct answer is C) $4,361.

The Solution to This Problem Requires Time Value of Money