Question

Find the present value of the given future payment at the

specified interest rate. ​$ 5000due in20 years at ​5% compounded
annually

Answer 1

To find the present value of a future payment of $5000 due in 20 years at a 5% interest rate compounded annually, we need to use the formula for compound interest. By calculating the factor (1 + interest rate) raised to the power of the number of years, we can divide the future payment by this factor to get the present value. The present value of the payment is approximately $1885.47.

Step-by-step explanation:

To find the present value of a future payment, we need to use the formula for compound interest. In this case, the future payment is $5000 due in 20 years at a 5% interest rate compounded annually.

1. First, we calculate the factor (1 + interest rate) raised to the power of the number of years, which is (1 + 0.05)^20.
2. Next, we divide the future payment by the factor calculated in step 1. So, $5000 divided by (1 + 0.05)^20 will give us the present value of the payment.
3. Using a calculator, we find that (1 + 0.05)^20 is approximately 2.653.
4. Finally, dividing $5000 by 2.653, we get the present value of the payment, which is approximately $1885.47.