Suppose Peter expects to receive $5,000 three years from today. If the interest rate is 4 percent, the present value of $5,000 is approximately _____.

Question

Suppose Peter expects to receive $5,000 three years from today. If the interest rate is 4 percent, the present value of $5,000 is approximately _____.​

Quizplus · Accepted Answer

The present value of a future sum of money is calculated using the formula:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the interest raten is the number of yearsIn this case, we have:FV = $5,000r = 4% = 0.04n = 3Plugging these values into the formula, we get:PV = $5,000 / (1 + 0.04)^3PV = $5,000 / 1.1255PV = $4,444.44Therefore, the present value of $5,000 three years from today is approximately $4,444.

Suppose Peter Expects to Receive $5,000 Three Years from Today