Question

What is the value at time point 1 of $700 payable at the end of 10 th year if the annual effective interest rate is 4%? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a $491.81 b $451.23 c $429.74 d $700.00

Answer 1

The present value of $700 payable at the end of the 10th year with an annual effective interest rate of 4% is approximately $451.23. This is calculated using the present value formula, taking into account the future value, interest rate, and number of years until payment. (Option b)

Step-by-step explanation:

To find the present value of $700 payable at the end of the 10th year with an annual effective interest rate of 4%, we can use the present value formula. This formula is PV = FV / (1 + r)n, where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of years until payment.

Let's calculate the present value for this scenario:

1. Future Value (FV) = $700
2. Annual effective interest rate (r) = 4% or 0.04
3. Number of years (n) = 10
4. Present Value (PV) = $700 / (1 + 0.04)10
5. PV = $700 / (1.04)10
6. PV = $700 / 1.48024
7. PV = $451.23 (rounded to two decimal places)

Therefore, the present value at time point 1 of $700 payable at the end of the 10th year at an annual effective interest rate of 4% is approximately $451.23.