Question

With a nominal interest rate of 5% per year, the present discounted value of $100 to be received in 10 years is A) $50.00. B) $61.39. C) $95.24. D) $150.00. E) $163.89.

Answer 1

Given,

Nominal interest rate (r) = 5%, Time period (n) = 10 years, Future value = $100

To find the present value of $100 to be received in 10 years, we will use the below formula:

Future Value = Present Value * (1 + r /100) ^ n

100 = Present Value * (1 + 5/100) ^ 10

100 = Present Value * ( 1+ 0.05) ^10

100 = Present Value * (1.05)^10

100 = Present Value * 1.6288

Present value = 100 / 1.6288 = 61.39

Present Value = 61.39

Hence, the correct answer is Option (B) i.e. 61.39