Question

# 1. How much must be invested today to have \$1,000 in two years if the interest...

1.

How much must be invested today to have \$1,000 in two years if the interest rate is 5%?

\$909.09

\$900.00

\$907.00

\$950.00

2.

Find the present value of \$100 to be received at the end of two years if the discount rate is 12% compounded monthly.

\$66.50

\$78.76

\$68.80

\$91.80

\$79.75

Present Value = Future Value / ( 1 + rate )n

where

Future value = amount to have after two year ( 1000 )

Rate = rate per year ( 5% )

N = number of period ( 2 )

Present Value = Future value / ( 1+ rate )n

= 1000 / (1.05)2

= \$ 907

Present Value = Future Value / ( 1 + rate )n

where

Future value = amount to be received after 2 year ( 100 )

Rate = rate per month ( 12 / 12 = 1% ) as it is monthly compounded

N = number of period ( 12 * 2 = 24 ) as it is monthly compounded

Present Value = Future Value / ( 1 + rate )n

= 100 / ( 1.01 )24

= \$ 78.76

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