QuestionJune 2, 2025

What is the present value of 11,000 received a. 10 years from today when the interest rate is 10% per year? b. 20 years from today when the interest rate is 20% per year? c. 5 years from today when the interest rate is 5% per year?

What is the present value of 11,000 received a. 10 years from today when the interest rate is 10% per year? b. 20 years from today when the interest rate is 20% per year? c. 5 years from today when the interest rate is 5% per year?
What is the present value of 11,000 received
a. 10 years from today when the interest rate is 10%  per year?
b. 20 years from today when the interest rate is 20%  per year?
c. 5 years from today when the interest rate is 5%  per year?

Solution
4.4(264 votes)

Answer

a. \4,235.89 ### b. \424.46 ### c. \8,609.47 Explanation 1. Identify the formula for present value Use the formula for present value: PV = \frac{FV}{(1 + r)^n}, where FV is future value, r is interest rate, and n is number of years. 2. Calculate present value for part (a) Substitute FV = 11,000, r = 0.10, n = 10: PV = \frac{11,000}{(1 + 0.10)^{10}}. 3. Calculate present value for part (b) Substitute FV = 11,000, r = 0.20, n = 20: PV = \frac{11,000}{(1 + 0.20)^{20}}. 4. Calculate present value for part (c) Substitute FV = 11,000, r = 0.05, n = 5: PV = \frac{11,000}{(1 + 0.05)^{5}}.

Explanation

1. Identify the formula for present value<br /> Use the formula for present value: $PV = \frac{FV}{(1 + r)^n}$, where $FV$ is future value, $r$ is interest rate, and $n$ is number of years.<br /><br />2. Calculate present value for part (a)<br /> Substitute $FV = 11,000$, $r = 0.10$, $n = 10$: $PV = \frac{11,000}{(1 + 0.10)^{10}}$.<br /><br />3. Calculate present value for part (b)<br /> Substitute $FV = 11,000$, $r = 0.20$, $n = 20$: $PV = \frac{11,000}{(1 + 0.20)^{20}}$.<br /><br />4. Calculate present value for part (c)<br /> Substitute $FV = 11,000$, $r = 0.05$, $n = 5$: $PV = \frac{11,000}{(1 + 0.05)^{5}}$.
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