Question

[4] Based on 8% interest compounded annually from day of deposit to day of withdrawal, what is the present value today of $4,000 to be received 6 years from today? Present Value of $1 Periods Discounted at 8% per Period 1 .926 2 .857 3 .794 4 .735 5 .681 A. $4,000 × 0.926 × 6. B. $4,000 × 0.794 × 2. C. $4,000 × 0.681 × 0.926. D. Cannot be determined from the information given.

Answer 1

Answer: The correct answer is "C. $4,000 × 0.681 × 0.926.".

Explanation: If we want to know the present value of $ 4000 that will be received within 6 years from today. Having the update factors for only 5 periods First we multiply the capital ($ 4000) by the factor for 5 periods and then multiply it by the factor for 1 period to complete the 6 periods.