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What is the present worth of $1,095.50, payable in 20 years, if the discount rate (4%), compounds annually?
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What is the present worth of $1,095.50, payable in 20 years, if the discount rate (4%), compounds annually?

User Karim Agha
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1 Answer

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Answer:

$500

Step-by-step explanation:

The expression that describes the present net worth of an investment (P) given its future value (FV) at an annual rate (r) for a period of n years, compounded annually is:


P=(FV)/((1+r)^n)

If the future value of an investment is $1,095.50 after 20 years at a rate of 4% per year, the present value (P) is:


P=(1,095.50)/((1+0.04)^(20))\\P= \$499.97

The present worth of this investment is roughly $500.

User Dcstraw
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