Question

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

Answer 1

$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.