Question

What is the present value of $ 4,000 received

a. 12 years from today when the interest rate is 10 % per​ year?

b. 24 years from today when the interest rate is 20 % per​ year?

c. 6 years from today when the interest rate is 5 % per​ year?

Answer 1

The present value of an amount received n years from now when interest rate is r% is :
P/(1+r)^n

All the below questions are now solved using this same formulae :

a. Present value of $ 4000 received 12 years from today when interest rate is 10% per year is :

= $4000 / (1.1)^12

=$1274.52 (Ans)

b. Present value of $4000 received 24 years from today when interest rate is 20% per year is :

=$4000/(1.2)^24

=$ 50.31 (Ans)

b. Present value of $4000 receied 6 years from today when interest rate is 5% per year is :

= $4000/(1.05)^6

=$2984.86 (Ans)