Roy is going to receive a payment of $5,000 one year from today. He earns an average of 6% on his investments. What is the present value of this payment?
A) $4,717
B) $4,821
C) $5,000
D) $5,300

Question

Quizplus · Accepted Answer

The present value (PV) of a future payment is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. Here, FV = $5,000, r = 6% or 0.06, and n = 1 year. Thus, PV = $5,000 / (1 + 0.06)^1 = $5,000 / 1.06 = $4,716.98, which rounds to $4,717.

Roy Is Going to Receive a Payment of $5,000 One