A bank offers to sell a bank note that will reach a maturity value of $12,000 in 12 years. How much should you pay for it now if you wish to receive an 8% return on your investment?
A) $925.93
B) $4594.71
C) $11,040.00
D) $920.00

Question

Quizplus · Accepted Answer

To find the present value of the bank note, we use the formula for present value: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value ($12,000), r is the annual interest rate (8% or 0.08), and n is the number of years (12). Plugging in the values, we get $PV = \frac{12000}{(1 + 0.08)^{12}} = $4594.71$.

A Bank Offers to Sell a Bank Note That Will