On January 1, a 6-year, $5,000, non-interest-bearing note payable was issued when the market rate of interest was 8%. The present value of the note is

Question

Quizplus · Accepted Answer

Using the Present Value formula:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the market interest rate, and n is the number of years.

In this case, FV = $5,000, r = 8%, and n = 6 years. Plugging these values into the formula, we get:

PV = $5,000 / (1 + 0.08)^6
PV = $5,000 / 1.586874
PV = $3,150.93

Rounding to the nearest dollar, the present value of the note is $3,151. Therefore, the best choice is A.

On January 1, a 6-Year, $5,000, Non-Interest-Bearing Note Payable Was