Question

Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in 2 years. The interest rate on this type of loan is 8%. What is the present value of the note

Answer 1

$85,734

Explanation:

We have been given that Karel sells goods to customers in exchange for a $100,000 non-interest-bearing note due in 2 years. The interest rate on this type of loan is 8%. We are asked to find the present value of the note.

`PV=FV(1)/((1+r)^n)`, where,

PV = Present Value,

FV = Future Value,

r = Interest rate in decimal form,

n = Time

Let us convert given interest rate into decimal form as:

`8\%=(8)/(100)=0.08`

`PV=100,000*(1)/((1+0.08)^2)`

`PV=(100,000)/((1.08)^2)`

`PV=(100,000)/(1.1664)`

`PV=85733.882030`

`PV\approx 85,734`

Therefore, the present value of the note is $85,734.