Asked by Ebony McFadden on Jul 06, 2024
Verified
The rate of earnings is 6% and the cash to be received in four years is $20,000. The present value amount, using the following partial table of present value of $1 at compound interest, is? Year 6%10%12%10.9430.9090.89320.8900.8260.79730.8400.7510.71240.7920.6830.636\begin{array} { c c c c } \text { Year } & 6 \% & 10 \% & 12 \% \\\hline 1 & 0.943 & 0.909 & 0.893 \\2 & 0.890 & 0.826 & 0.797 \\3 & 0.840 & 0.751 & 0.712 \\4 & 0.792 & 0.683 & 0.636\end{array} Year 12346%0.9430.8900.8400.79210%0.9090.8260.7510.68312%0.8930.7970.7120.636
A) $13,660
B) $12,720
C) $15,840
D) $16,800
Present Value
The value today of a sum of money or cash flows expected in the future, discounted at a particular rate of return.
Compound Interest
Interest calculated not only on the original principal amount but also on the accrued interest from past periods on a deposit or loan.
Earnings Rate
Earnings rate refers to the percentage of return generated by an investment or the profitability of a company over a specified period.
- Implement the principle of time value of money to evaluate future cash inflows against their present worth.
Verified Answer
IM
Irvan MeyersJul 13, 2024
Final Answer :
C
Explanation :
The present value of $20,000 received in four years at a 6% rate of earnings is calculated using the present value factor for 4 years at 6%, which is 0.792. Therefore, the present value is $20,000 * 0.792 = $15,840.
Learning Objectives
- Implement the principle of time value of money to evaluate future cash inflows against their present worth.