You receive $500 today which you plan to save for two years. Also, in two years you will be given another $500. If the interest rate is 5 percent, what is the present value of the payment of $500 today and the $500 in two years? A) $500(1.05)²+ $500/(1.05)² B) $500(1.05)²+ $500 C) $500 + $500/(1.05)² D) $500 + $500

Question

Quizplus · Accepted Answer

To find the present value of the payments, we need to discount them to their present value using the given interest rate of 5 percent.

The first payment of $500 today has a present value of $500.

The second payment of $500 in two years has a present value equal to:

$500/(1.05)^2 = $453.51

Therefore, the total present value of the payments is:

$500 + $453.51 = $953.51

So, the correct answer is C.

You Receive $500 Today Which You Plan to Save for Two