Final answer:
To find the present value of a future amount at a simple interest rate, convert the annual rate to a monthly rate, calculate the interest, and subtract it from the future amount.
Step-by-step explanation:
To find the present value of $32,000 for 20 months at 5% simple interest, we'll first need to determine the interest amount and then subtract it from the future value.
Let's break it down step-by-step:
- Convert the annual interest rate to a monthly rate by dividing by 12. Since we have a 5% annual rate, the monthly rate is 0.05/12.
- Next, calculate the simple interest over 20 months by multiplying the principal amount by the monthly interest rate and then by the number of months. Simple interest = Principal × Monthly Rate × Number of Months.
- With the calculated interest, we can now compute the present value by subtracting the interest from the future amount. The present value formula is Present Value = Future Value - (Future Value × Monthly Rate × Number of Months).
It's important to use the simple interest formula accurately to find the correct present value.