At which interest rate is the present value of $79.50 one year from today equal to $75 today?
A)4 percent
B)5 percent
C)6 percent
D)7 percent

Question

Quizplus · Accepted Answer

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

From the given information, we have:
PV = $75, FV = $79.50, and n = 1 year.

Substituting these values into the formula:
$75 = $79.50/(1+r)^1
1+r = $79.50/$75
1+r = 1.06
r = 0.06 or 6%

Therefore, the interest rate at which the present value of $79.50 one year from today is equal to $75 today is 6 percent.

At Which Interest Rate Is the Present Value of $79