Question

1. What is the percentage change in the PV of $100 due in 1 year when the interest rate changes from 5% to 10%

Answer 1

Percentage decreased by 4.5%

Step-by-step explanation:

Present value for 5%

Present value for 5% = 100 / (1+5%)

Present value for 5% =100/1.05

Present value for 5% = $95.24 (Approx)

Present value for 10%

Present value for 10% = 100 / (1+10%)

Present value for 10% =100/1.1

Present value for 10% = $90.91 (Approx)

Percentage Change = [(90.91/95.24)-1]100

Percentage Change = -4.5%

Percentage decreased by 4.5%