A bank lends some money to a business.The business will pay the bank a single payment of $180,000 in ten years time.How much greater is the present value (PV)of this payment if the interest rate is 9% rather than 8%?

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Quizplus · Accepted Answer

The present value (PV) of a future payment is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. For an interest rate of 9%, the PV = $180,000 / (1 + 0.09)^10 ≈ $74,654. For an interest rate of 8%, the PV = $180,000 / (1 + 0.08)^10 ≈ $83,995. The difference in present values is $83,995 - $74,654 = $9,341.

A Bank Lends Some Money to a Business