Question

What is the approximate present value of $1 that will be paid to you in 3 years if the interest rate were 5 percent?

a. $1.00
b. $1.05
c. $0.86
d. $1.14

Answer 1

The present value is $0.86.-

Step-by-step explanation:

Giving the following information:

Future Value (FV)= $1

Number of periods (n)= 3 years

Interest rate (i)= 5% = 0.05

To calculate the present value (PV), we need to use the following formula:

PV= FV/(1+i)^n

PV= 1/(1.05^3)

PV= $0.8634

The present value is $0.86.-