The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to
A) $1,000/(1.03)5.
B) $1,000/(1.05)3.
C) $1,000 × (1.05)3.
D) $1,000 - ($1,000) × .03 × 5.

Question

Quizplus · Accepted Answer

The correct formula for calculating the present value of a future sum of money is the future value divided by (1 + rate)^number of periods. Therefore, for $1,000 to be received in 3 years at a discount rate of 5%, the calculation is $1,000/(1.05)^3.

The Present Value of $1,000 Discounted at the Rate of 5