Consider the following timeline: If the current market rate of interest is 8%,then the value as of year 1 is closest to:
A) $0
B) $1003
C) $540
D) $77

Name: Consider the following timeline: If the current market rate of interest is 8%,then the value as of year 1 is closest to: A) $0 B) $1003 C) $540 D) $77
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Question

Consider the following timeline:  If the current market rate of interest is 8%,then the value as of year 1 is closest to:
A) $0 
B) $1003 
C) $540 
D) $77

Quizplus · Accepted Answer

D) Two part problem: FV = PV(1 + r)ⁿ = 500(1.08)¹ = $540 PV = FV/(1 + r)ⁿ = -500/(1.08)¹ = -$463 So the answer is $540 + -$463 = $77

Consider the Following Timeline: If the Current Market Rate