Question

1.

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

Group of answer choices

$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.

Group of answer choices

$66.50

$78.76

$68.80

$91.80

$79.75

Answer 1

Answer 1 :-

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

Answer 2 :-

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