If someone offers to pay you $1,200 in three years at the going interest rate of 4%, what is the present value for this future payment?

Question

Quizplus · Accepted Answer

The present value (PV) of a future payment can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($1,200), r is the annual interest rate (4% or 0.04), and n is the number of years (3). Plugging these values into the formula gives PV = $1,200 / (1 + 0.04)^3 = $1,066.80.

If Someone Offers to Pay You $1,200 in Three Years