Question

29) If the rate of interest (r) is 9%, then you should be indifferent about receiving $750 in one year or $________ today A) $688.07 today B) $750 today C) $825.68 today D) None of the above

Answer 1

$688.07

Step-by-step explanation:

To find the answer, we can use the Future Value of an Investment formula:

FV = PV(1 + i)^n

Where:

FV = Future value

PV = Present value

i = interest rate

n = number of compounding periods.

Now, we replace the amounts into the formula to find the value of that the $750 had a year ago.

$750 = PV(1 + 0.09)^1

$750 = PV(1.09)

$750 / 1.09 = PV

$750 / 1.09 = $688.07

We can see that $750 is the value that $688.07 will have in one year, under a 9% interest rate. For that reason, the correct answer is A).