If the interest rate is 5 percent, what is the present value of $10,000 received three years from now?

Question

Quizplus · Accepted Answer

To calculate the present value (PV) of $10,000 received three years from now we will use the formula:

PV = FV / (1+r)^n

Where, 
FV = Future Value 
r = Interest Rate 
n = Time

Putting the values in the above formula we get,

PV = $10,000 / (1+0.05)^3
PV = $10,000 / 1.1576
PV = $8,638

Therefore, the present value of $10,000 received three years from now, at 5% interest rate, is $8,638. 
Option A is the correct answer.

If the Interest Rate Is 5 Percent, What Is the Present