The present value of $900 to be received in three years, with an annual interest rate of 10 percent, compounded annually, is equal to $__________.
A) 772
B) 676
C) 816
D) 810

Question

Quizplus · Accepted Answer

Using the formula for present value of a future lump sum:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Plugging in the numbers, we get:

PV = 900 / (1 + 0.1)^3 
PV = 900 / 1.331 
PV = 675.98

Rounding to the nearest dollar, the answer is $676. Therefore, the best answer choice is B.

The Present Value of $900 to Be Received in Three