The present value of $1,000 discounted at the rate of 5% per year, to be received at the end of 3 years is equal to
A) $1,000/(1.03)5.
B) $1,000/(1.05)3.
C) $1,000 x (1.05)3.
D) $1,000-($1,000) x .03 x 5.

Question

Quizplus · Accepted Answer

The present value can be calculated using the formula PV = FV/(1+r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years. Applying the formula, we get:
PV = 1000/(1+0.05)^3
PV = 1000/1.1576
PV = $863.84 (rounded to two decimal places)
Therefore, the best choice is B, $1,000/(1.05)3.

The Present Value of $1,000 Discounted at the Rate of 5