To calculate the present value of $100,000 received five years from now at an interest rate of 10%, we use the formula PV = FV / (1 + r)^n. After plugging in the values, the present value is found to be approximately $62,092.13.
The question asks about the present value (PV) of a future sum of money when the interest rate is given. The present value is what an amount of money to be received in the future is worth now, given a specific interest rate. In this case, we need to calculate the present value of receiving $100,000 five years from now at an interest rate of 10% per year.
To calculate the present value, we use the formula:
PV = FV / (1 + r)^n
Where:
- PV is the present value
- FV is the future value, which in this case is $100,000
- r is the interest rate (expressed as a decimal), here it is 0.10
- n is the number of years until the amount is received, which is 5
Plugging these values into the formula gives us:
PV = $100,000 / (1 + 0.10)^5
PV = $100,000 / (1.611)
PV = $62,092.13 approximately
So, the present value of $100,000 received five years from now at an interest rate of 10% per year is approximately $62,092.13.