Final answer:
The present value of a $100 payment to be made one year from now, with a 5% interest rate on a savings account, is $95.24. This is calculated using the present value formula, taking into account the future value, interest rate, and time period.
Step-by-step explanation:
If a bank will pay us 5% interest on money in a savings account, then the present value of a $100 payment we have to make to a department store one year from now can be calculated using the formula for present value, which is:
PV = \( \frac{FV}{(1 + r)^n} \)
Where PV is the present value, FV is the future value ($100), r is the interest rate (5% or 0.05), and n is the number of years (1 in this case).
Using the formula, we have:
PV = \( \frac{100}{(1+0.05)^1} \) = \( \frac{100}{1.05} \) = $95.24
Therefore, the present value of the $100 payment is $95.24.