Your firm has sold a fleet of 100 cars to a local firm at a discounted price of $20,000 each (a total of $2,000,000)due in six months.You are willing to discount the purchase price at an annual rate of 4% if the firm pays cash today.What is the least amount of money you will accept if the firm pays your company today?
A)$2,039,608
B)$1,961,161
C)$1,960,495
D)This problem cannot be answered because we have an annual interest rate but only one-half year in time.

Question

Quizplus · Accepted Answer

Using the formula for discounting, we have:
PV = FV / (1 + r)^t
where PV is the present value, FV is the future value, r is the annual interest rate, and t is the time in years.
In this case, FV = $2,000,000, r = 0.04, and t = 0.5 (since the payment is due in six months or half a year). Plugging these values into the formula, we get:
PV = $2,000,000 / (1 + 0.04/2)^0.5
PV = $1,961,161. Therefore, the least amount of money the company will accept if paid today is $1,961,161.

Your Firm Has Sold a Fleet of 100 Cars to a Local