Molly borrows money by promising to make a single payment of $100,000 at the end of 5 years.How much money is Molly able to borrow if the interest rate is 10%,compounded semiannually? (PV of $1,FV of $1,PVA of $1,and FVA of $1)$\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$
A)$38,550
B)$78,350
C)$62,090
D)$74,850
E)$61,390

Question

Quizplus · Accepted Answer

To find out how much Molly can borrow, we need to calculate the present value (PV) of $100,000 due in 5 years at a 10% annual interest rate, compounded semiannually. The formula for the present value of a single future amount is $PV = \frac{FV}{(1 + r)^n}$, where FV is the future value, r is the interest rate per period, and n is the number of periods. Since the interest is compounded semiannually, the rate per period is 5% (or 0.05 as a decimal), and there are 10 periods (5 years * 2). Using the appropriate factor from the present value of $1 table for n=10 and r=5%, we find the factor and multiply it by $100,000 to get the present value. The correct answer, based on the given options and the use of the appropriate factor, is $61,390.

Molly Borrows Money by Promising to Make a Single Payment (Use appropriate factor(s)from the tables provided.)\bold{\text{(Use appropriate factor(s)from the tables provided.)}}(Use appropriate factor(s)from the tables provided.)

Molly Borrows Money by Promising to Make a Single Payment $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$