Question

Calculate the present value of $100,000 to be received in 6 months. Use an annual discount rate of 10%. Do not adjust the discount rate to a semi-annual rate. Keep it annual and adjust N to the appropriate value.

a. $ 95,346
b. $ 56,447
c. $ 90,909
d. $100,000

Answer 1

a. $ 95,346

Step-by-step explanation:

Since the amount was invested at an annual rate of 10%, and the period was 6 months, the value of "n", the period of the investment in years, is:

`n=(6)/(12)=0.5\ years`

The investment required to yield a $100,000 future value at a 10% annual rate for 0.5 years is:

`PV=(FV)/((1+r)^n) \\PV=(100,000)/((1+0.10)^0.5)\\PV=\$95,346`

The present value is a. $ 95,346.