In calculating the present value of $1,000 to be received 5 years from today, the discount factor has been calculated to be 7008.What is the apparent interest rate?
A)5.43 percent
B)7.37 percent
C)8.00 percent
D)9.50 percent discount factor =

Question

Quizplus · Accepted Answer

The formula for calculating the present value of a future amount is:
Present Value = Future Value / (1 + r)n 
Where: 
r = interest rate 
n = number of periods

In this case, we are given that the present value of $1,000 to be received 5 years from today is 7008. So we can calculate the interest rate as follows:
7008 = 1000 / (1 + r)5 
Solving for r, we get:
r = ((1000 / 7008)1/5) - 1 
r = 0.0737, or 7.37%

Therefore, the apparent interest rate is 7.37 percent, which corresponds to choice B.

In Calculating the Present Value of $1,000 to Be Received