Question

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.

a. True
b. False

Answer 1

The present value of the amount given can be found as follows;
A=p(1+r/100)^n
A=amount=$5000
p=principle=?
r=6%
n=4 years
thus to calculate for p we we substitute the values in our formula;
5000=p(1+6/100)^4
5000=p(1.06)^4
hence;
p=5000/(1.06)^4
p=3,960.50
The answer is false