Suppose you will receive $500 in one year and the risk-free interest rate (rf)is 5%.The equivalent value today is closest to:

Question

Quizplus · Accepted Answer

To find the present value, we use the formula 
PV = FV / (1 + rf)^n,
where PV is the present value, FV is the future value, rf is the risk-free rate, and n is the number of years. 
Plugging in the values, we get 
PV = 500 / (1 + 0.05)^1
PV = 500 / 1.05
PV ≈ 476
Therefore, the closest equivalent value today is $476, which is given by choice B.

Suppose You Will Receive $500 in One Year and the Risk-Free