Question

Annette Anderson has a choice of receiving either $5,000 in two years or a discounted sum today. If her opportunity cost is 8% what sum received today would be the equivalent to $5,000 in two years

Answer 1

the present value is $4,286.69

Step-by-step explanation:

The computation of the sum received today is shown below:

As we know that

Present value = Future value ÷ (1+rate of interest)^number of years

= $5,000 ÷ (1 + 0.08)^2

= $5,000 ÷ 1.1664

= $4,286.69

hence, the present value is $4,286.69

We simply applied the above formula so that the correct value could come

And, the same is to be considered