Question

What's the present value of $19,000 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually?

Select the correct answer. a. $12,177.83 b. $12,234.63 c. $12,220.43 d. $12,192.03 e. $12,206.23

Answer 1

In the question, it mentions that the 'appropriate' interest rate is 4.5%. And based on the available options,it is assumed that the 4.5% is the semiannual rate of interest. Using this assumption, calculating the PV (Present value):

FV	19000
Periods/year	2
Semi-annual interest rate (r)	4.50%
N	5
For semi-annual, N	10
Using the below formula:
PV = FV/ [(1+ r)^N]	19000/[(1+4,5%)^10]
PV =	12234.63

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