Final answer:
The present discounted value is a calculation used to determine the worth of future benefits in the present by considering an interest rate. To compute the present discounted value, you need to know the future payment and interest rate. Higher interest rates decrease the present value of future payments.
Step-by-step explanation:
The present discounted value is a calculation used to determine the worth of future benefits in the present by considering an interest rate. To compute the present discounted value, you need to know the amount of the future payment and the interest rate. Using the formula: PV = FV / (1 + R)^t, where PV is the present value, FV is the future value, R is the interest rate, and t is the time period.
In the case of the given problem, the interest rates are R = 0.01, 0.02, 0.04, and 0.05. You need to recomputed the present discounted value for each case by plugging in the values into the formula. For example, if the future payment is $100, and the interest rate is 0.01, the present discounted value would be $100 / (1 + 0.01) = $99.0099.
The economic intuition behind why the present discounted value changes when the interest rate changes is that a higher interest rate increases the opportunity cost of waiting for future payments. When the interest rate is high, the present value of future payments decreases because the value of receiving money sooner rather than later increases.