A bank lends some money to a business. The business will pay the bank a single payment of $180,000 in ten years' time. How much greater is the present value (PV) of this payment if the interest rate is 9% rather than 8%?

Question

Quizplus · Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n. For 9%, PV = 180,000 / (1 + 0.09)^10 = $76,033. For 8%, PV = 180,000 / (1 + 0.08)^10 = $83,374. The difference is $83,374 - $76,033 = $7,341.

A Bank Lends Some Money to a Business