Discounting One Year What is the present value of a $500 payment in one year when the discount rate is 5 percent?
A)$475.00
B)$476.19
C)$500.00
D)$525.00

Question

Quizplus · Accepted Answer

To calculate the present value of a future payment, we use the formula:
PV = FV / (1 + r)^n

Where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

In this case, we are discounting one year, so n = 1. The future value is $500 and the discount rate is 5%.

PV = 500 / (1 + 0.05)^1
PV = 500 / 1.05
PV = $476.19

Therefore, the present value of a $500 payment in one year when the discount rate is 5 percent is $476.19. The best choice is B.

Discounting One Year What Is the Present Value of a $500