Question

Assuming a market interest rate of 6 percent per year, what is the present value of $5,000 payable at the end of three years?

(1) $4,450

(2) $4,317

(3) $4,717

(4) $4,198

Answer 1

The correct answer is $4,198

The explanation below:-

Given,

Interest rate (i) = 6% = 0.06

Future value (FV) = $5,000

Time = (n) = 3 years

Here,

We have to find the Present value of $5,000 payable at the end of three years

So,

To find the present value We can use the following formula:-

PV = FV (1 + i)^(-n)

Substuting the respective value in the above formula:-

PV = $5,000 * (1 + 0.06)^(-3)

PV = $5,000 * (1.06)^(-3)

PV = $5,000 * (0.8396)

PV = $4198

So, the correct option is ''Option (4) $4,198''