Question

Dunston Company will receive $500,000 in a future year. If the future receipt is discounted at an interest rate of 10%, its present value is $256,580.

In how many years is the $500,000 received?

6 years
5 years
7 years
8 years

Answer 1

After 7 year future value will be $500000

So option (C) will be correct answer

Step-by-step explanation:

We have given future value which company receives = $500000

Rate of interest r = 10%

Present value , that is principal amount P = $256580

We know that future value is given by
`A=P(1+(r)/(100))^n`, here A is future value , P is present value , r is rate of interest and n is time period

So
`500000=256580(1+(10)/(100))^n`

`1.948=1.10^n`

Taking log both side

`log1.948=nlog1.1`

`0.2895=n* 0.041`

n = 7 year

So after 7 year year value will be $500000

So option (C) will be correct answer