If the annual interest rate is currently 3.5%, Joan is a $1000 payment in exactly two years.

Question

Quizplus · Accepted Answer

To find the present value of a future payment, we can use the formula:

PV = FV / (1+r)^n

Where:
PV = present value
FV = future value (in this case $1000)
r = annual interest rate (3.5% or 0.035)
n = number of years (2)

Using this formula, we can find the present value of the $1000 payment in two years:

PV = 1000 / (1+0.035)^2
PV = 926.92

So the present value of the $1000 payment in two years is $926.92.

Based on the answer choices, we can see that Joan would be better off accepting $950 right now (choice C), since this is greater than the present value of the $1000 payment in two years ($926.92).

If Joan accepted $950 right now, she would be getting more than the present value of the future payment, which means she would be earning a positive rate of return. This positive rate of return is the difference between the present value of the future payment and the amount she is receiving now.

All the other choices either offer less than or equal to the present value of the future payment, so Joan would either be worse off or indifferent to accepting those offers.

If the Annual Interest Rate Is Currently 3