Question

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?

a. $3,040.63
b. $2,420.68
c. $2,996.33
d. $2,591.85

Answer 1

d. $2,591.85

Step-by-step explanation:

To solve we can use the present value formula defined by

`PV=(FV)/((1+r)^t)`

where PV is present value, FV is future value, t is time and r is the interest rate , we can replace the values given in the question. Where 4000 is the future value, the time is t=6 years, and the interest rate is r=0.075, so we get

`PV=(4000)/((1+0.075)^6)=2,591.85`