Which of the following best expresses the present value of $500 that you have to wait four years and three months to receive?
A) ($500/4.25) × (1 + i)
B) $500 × 4.25 × (1 + i)
C) $500/(1 + i)⁴.²⁵
D) ($500/4) × (1 + i)³

Question

Quizplus · Accepted Answer

The present value of future cash flows can be calculated using the formula: 
PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

In this case, the FV is $500, n is 4.25 years, and we need to adjust for the extra 3 months of waiting time.

So, the correct formula is: 
PV = $500 / (1 + r)^(4.25 + 0.25) = $500 / (1 + r)^4.5

Option C is the only one that matches this formula, so it is the best choice. Options A, B, and D use incorrect formulas or do not adjust for the extra waiting time.

Which of the Following Best Expresses the Present Value of $500