What is the present value of an IOU for $1,000 due to be paid in two years,if the discount rate is 8%?
A)$857.34
B)$766.40
C)$885.00
D)$683.26
E)$810.77

Question

Quizplus · Accepted Answer

We can use the formula for present value of a future sum:

PV = FV / (1+r)^n

where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods.

Substituting the given values:

PV = 1,000 / (1+0.08)^2
PV = 1,000 / 1.1664
PV = $857.34

Therefore, the best choice is A) $857.34.

What Is the Present Value of an IOU for $1,000