Consider the following timeline: If the current market rate of interest is 7%, then the value as of year 1 is closest to ________.
A) $0
B) $1000
C) $570
D) $68

Question

Consider the following timeline:  If the current market rate of interest is 7%, then the value as of year 1 is closest to ________.
A) $0 
B) $1000 
C) $570 
D) $68

Quizplus · Accepted Answer

D) Two part problem:
FV = PV (1 + r)n = 500 11eaabab_c0c6_267e_b90e_15ce6df7ea00_TB5536_11 = $535
PV = FV / (1 + r)n = -500 / 11eaabab_c0c6_267f_b90e_957e1d665acd_TB5536_11 = -$467
So, the answer is $535 + -$467 = $68.

Consider the Following Timeline: If the Current Market Rate