Multiple Choice
If you desire your savings to double in 6 years, which annual interest rate, compounded annually, is closest to what you need?
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10. Time Value of Money
Time Value of Money Equations
Multiple Choice
What is the present value of a \$350 payment to be received in one year if the discount rate is 10\%?
A
\$315.00
B
\$350.00
C
\$318.18
D
\$335.00
Verified step by step guidance1
Step 1: Understand the concept of present value (PV). Present value is the current worth of a future sum of money given a specific discount rate. The formula for calculating PV is: PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods.
Step 2: Identify the given values in the problem. The future value (FV) is \$350, the discount rate (r) is 10% (or 0.10 in decimal form), and the number of periods (n) is 1 year.
Step 3: Substitute the given values into the present value formula. Using MathML, the formula becomes:
Step 4: Perform the calculation step-by-step. First, add 1 to the discount rate (1 + 0.10 = 1.10). Then, raise this value to the power of n (1.10^1 = 1.10). Finally, divide the future value (\$350) by this result.
Step 5: Interpret the result. The calculated present value represents the amount you would need to invest today at a 10% discount rate to receive \$350 in one year.
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