$180 is to be paid now. What amount would be equivalent 3 quarters earlier given an interest rate of 6.8% per year?
A) $184.33
B) $212.14
C) $171.27
D) $166.81
E) $191.54

Question

Quizplus · Accepted Answer

To find the equivalent amount 3 quarters earlier, we need to discount the future value ($180) back by the interest rate for the period in question. The formula for discounting is $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value, r is the interest rate per period, and n is the number of periods. Here, the interest rate per quarter is $6.8\% / 4 = 1.7\%$, or 0.017 as a decimal, and n is 3 quarters. Thus, $PV = \frac{180}{(1 + 0.017)^3}$, which calculates to approximately $171.27.

$180 Is to Be Paid Now