If the current rate of interest is 8%, then the present value (PV)of an investment that pays $1 000 per year and lasts 20 years is closest to:
A)$18 519
B)$9 818
C)$45 761
D)$20 000

Question

Quizplus · Accepted Answer

We can calculate the present value (PV) of the investment using the formula:

PV = (cash flow per period / interest rate per period) x (1 - 1 / (1 + interest rate per period) ^ number of periods)

In this case, the cash flow per period is $1,000, the interest rate per period is 8% / 1 = 8%, and the number of periods is 20.

Thus, PV = ($1,000 / 0.08) x (1 - 1 / (1 + 0.08) ^ 20) = $9,818. Therefore, the best choice is B.

If the Current Rate of Interest Is 8%, Then the Present