Question

Determine the discount rate assuming the PV of $1080 at the end of 1-year is $980?

Answer 1

- Value at the end of Year 1(Future Value)  = $1080

Present Value = $980

Calculating the diiscount rate:-

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

where, r = Discount rate

n = no of years = 1

980 = 1080/(1+r)^1

(1+r) = 1080/980

(1+r) = 1.102041

r = 10.20%

So, the discount rate is 10.20%

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