What is the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%?
A) $17,951
B) $18,480
C) $18,658
D) $18,669
E) $19,218

Question

Quizplus · Accepted Answer

The present value of a future payment can be calculated using the formula:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the effective annual interest raten is the number of yearsIn this case, the future value is $21,000, the effective annual interest rate is 4%, and the number of years is 3. Plugging these values into the formula, we get:PV = 21,000 / (1 + 0.04)^3PV = 21,000 / 1.124864PV = $18,669.01Therefore, the present value of the payment is $18,669.01, which is choice D.

What Is the Present Value of a Payment of $21,000