If the present discounted value of $400 next year is $380 this year,what is the implied rate of interest?
A) 5.26%
B) 5%
C) 2.56%
D) 2.60%

Question

Quizplus · Accepted Answer

The implied rate of interest can be found using the formula for present value: PV = FV / (1 + r), where PV is the present value ($380), FV is the future value ($400), and r is the rate of interest. Rearranging the formula to solve for r gives r = FV/PV - 1. Substituting the given values gives r = $400/$380 - 1 = 1.0526 - 1 = 0.0526, or 5.26%.

If the Present Discounted Value of $400 Next Year Is