Question

Find the present value of the future value of $8,600 at 9 1/2% simple interest for 5 years. (Round your answer to the nearest cent.)

Answer 1

The formula relating future value and present value is given as:

`FV=PV(1+r)^n`

Where,

• FV is the future value

,

• PV is the present value

,

• r is the rate of interest

,

• n is the number of periods interest held.

Rewrite the rate as a decimal:

`r=9(1)/(2)\%=9.5\%=0.095`

Substitute FV=8600, r=0.095, n=5 into the formula:

`8600=PV(1+0.095)^5`

Simplify the equation and solve for PV:

`\begin{gathered} 8600=PV(1.095)^5 \\ PV=(8600)/((1.095)^5)\approx5462.96 \end{gathered}`

Hence, the present value is about $5,462.96.