Which of the following is correct if the interest rate is 6 percent?
A)$215 a year from today has a present value of over $200, $420 a year from now has a present value over $400
B)$215 a year from today has a present value of over $200, $420 a year from now has a present value under $400
C)$215 a year from today has a present value of under $200, $420 a year from now has a present value over $400
D)$215 a year from today has a present value of under $200, $420 a year from now has a present value under $400

Question

Quizplus · Accepted Answer

According to the compound interest formula:
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 periods.
Using this formula, we can calculate the present values for both options:
PV1 = 215 / (1+0.06)^1 = $203.77 (rounded)
PV2 = 420 / (1+0.06)^1 = $396.23 (rounded)
Option B is correct because PV1 > $200 and PV2 < $400. The other options are incorrect because they either have both values above their respective thresholds (Option A and C) or both values below their respective thresholds (Option D).

Which of the Following Is Correct If the Interest Rate