Someone has offered you the opportunity to purchase an IOU.The IOU will pay back a total of $500 in three years.How much would you be willing to pay for that IOU today if you want to earn an annual rate of return of 16%?
A)$320.33
B)$422.63
C)$292.63
D)$380.45

Question

Quizplus · Accepted Answer

To find out how much you would be willing to pay for the IOU today, you can use the present value formula: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($500), r is the annual rate of return (16% or 0.16), and n is the number of years (3). Plugging in the numbers: PV = $500 / (1 + 0.16)^3 = $320.33.

Someone Has Offered You the Opportunity to Purchase an IOU