In a perfect asset market, it is known with certainty that an asset will sell for $24 in one year.If the annual interest rate is 10%, then the asset will sell for $26.40 right now.

Question

Quizplus · Accepted Answer

To calculate the present value of the asset, we use the formula:
Present Value = Future Value / (1 + interest rate)^time period

Here, the future value is $24, the interest rate is 10%, and the time period is 1 year.

So, Present Value = $24 / (1 + 0.10)^1 = $21.82

Therefore, the asset will sell for $21.82 right now, not $26.40.

In a Perfect Asset Market, It Is Known with Certainty