Brett won a scholarship competition that will award him with $1,000 today and another $1,000 next year. What is the present value of the scholarship money if the interest rate is 10%?

Question

Quizplus · Accepted Answer

The present value of the scholarship money can be calculated using the formula for the present value of a future sum of money, which is 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. For the $1,000 received today, its present value is simply $1,000 because it does not need to be discounted. For the $1,000 received next year, its present value is $1,000 / (1 + 0.10)^1 = $909.09. Adding these together gives $1,000 + $909.09 = $1,909.09, which rounds to $1,909.

Brett Won a Scholarship Competition That Will Award Him with $1,000