Question

If you inested $100 in an account that would return $121 at the end of two years, and you discounted the returns from the investment at 10% annual interest, what is the present value of the investment?

A) $82.64
B) $100.00
C) $110.00
D) $121.00

Answer 1

The present value of an investment of $100 that returns $121 in two years, discounted at a 10% annual interest rate, is $100.00, which corresponds to option B.

Step-by-step explanation:

If you invested $100 in an account that would return $121 at the end of two years, and you discounted the returns from the investment at 10% annual interest, you must calculate the present value (PV) of the investment using the present value formula:

PV = Future Value / (1 + Interest Rate)Number of Periods

The future value, in this case, is $121, the interest rate is 10% (or 0.10), and the number of periods is 2 years. Plugging these into the formula gives us:

PV = $121 / (1 + 0.10)2

PV = $121 / (1.10)2

PV = $121 / 1.21

PV = $100.00

Therefore, the present value of the investment is $100.00, which corresponds to option B) $100.00.