A lender is promised a $100 payment (including interest) one year from today. If the lender has a 6% opportunity cost of money, he/she should be willing to accept what amount today?
A) $100.00
B) $106.20
C) $96.40
D) $94.34

Question

Quizplus · Accepted Answer

The correct amount is found by discounting the future payment by the opportunity cost of money, using the formula: Present Value = Future Value / (1 + r)^n, where r is the interest rate and n is the number of periods. Here, it's $100 / (1 + 0.06)^1 = $94.34.

A Lender Is Promised a $100 Payment (Including Interest) One