You owe $3572.75 in 147 days and have decided to pay off your loan early. Your interest rate is 6.52%. What is the size of the cheque that you write today to pay off all of your debt?
A) $4381.33
B) $3481.33
C) $3581.33
D) $3381.33
E) $3814.33

Question

Quizplus · Accepted Answer

To calculate the present value of the debt you owe, you can use the formula for present value: PV = FV / (1 + r)^n, where PV is the present value (the size of the cheque today), FV is the future value ($3572.75), r is the daily interest rate (annual rate divided by the number of days in a year, so 6.52% or 0.0652 divided by 365), and n is the number of days (147). The calculation simplifies to finding how much you need to pay today to settle a future debt, considering the interest rate over the period. The correct answer, after performing the calculation with the given interest rate and time period, is closest to $3481.33, indicating that the debt's present value is less than its future value due to the time value of money.

You Owe $3572