Asked by Lizbeilyn Ozoria on Jul 26, 2024
Verified
The present value of $100 received 3 years from now given a current interest rate of 6% is
A) $82.00.
B) $83.96.
C) $100.00.
D) $116.00.
E) $118.00.
Present Value
The current value of a future sum of money or stream of cash flows given a specific rate of return.
Interest Rate
The percentage of a sum of money charged for its use, typically by a bank or financial institution on loans or savings.
- Acquire knowledge on how interest rates determine the present value of money to be received in the future.
Verified Answer
LH
Lynzi HoffmanAug 01, 2024
Final Answer :
B
Explanation :
To find the present value, we use the formula PV = FV/(1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods. Plugging in the values, we get PV = 100/(1 + 0.06)^3 = $83.96. Therefore, the best choice is B.
Learning Objectives
- Acquire knowledge on how interest rates determine the present value of money to be received in the future.