The present value of $475 received 3 years in the future would be calculated as which of the following when the interest rate is 6 percent?

Question

Quizplus · Accepted Answer

The present value of a future amount can be calculated using the formula: Present Value = Future Value / (1 + interest rate) ^ time

In this case, the future value is $475, the interest rate is 6% or 0.06, and the time is 3 years.

Using formula, the calculation is:

Present Value = 475 / (1 + 0.06) ^ 3
Present Value = 475 / 1.191016
Present Value = $398.56

Therefore, the best choice is B) 475/(1.06)³, which gives the correct answer of $398.56.

The Present Value of $475 Received 3 Years in the Future