Final answer:
The present value of a security that will pay $5,000 in 20 years with a 7% annual interest rate is approximately $1,292.24, calculated using the present value formula.
Step-by-step explanation:
To calculate the present value of a security that will pay $5,000 in 20 years with a 7% annual interest rate, we can use the present value formula which is: Present Value = Future Value / (1 + rate)time.
The calculation would be as follows:
Present Value = $5,000 / (1 + 0.07)20
Using a calculator:
Present Value = $5,000 / (1 + 0.07)20 = $5,000 / (1.07)20 = $5,000 / (3.8697) ≈ $1,292.24
Therefore, the present value of the security is approximately $1,292.24.