Tom has two investment options. He can either invest $3,000 in a friendʹs project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friendʹs project, he will receive $3,400 after 5 years.
-Refer to the scenario above. What is the present value of $3,400 to be received after 5 years?

Question

Quizplus · Accepted Answer

The present value (PV) of $3,400 to be received after 5 years can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($3,400), r is the annual interest rate (6% or 0.06), and n is the number of years (5). Plugging these values into the formula gives PV = $3,400 / (1 + 0.06)^5 = $2,540.68.

Tom Has Two Investment Options