Question

You have discovered an investment opportunity that earns an) 3% rate of interest compounded quarterly. Which of the following amounts is approximately equal to the amount you should deposit today to have $8,000 in five years? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Answer 1

	Let us consider each statement whther it is true or false.
	A)	FALSE
		Correct statement : Higher the discount rate lower the present value.
	B)	FV= PV*(1+r)^n
		Where,
		FV= Future Value
		PV = Present Value
		r = Interest rate
		n= Number of years
		= $10000*( 1+0.04)^1
		=10000*1.04
		= $10400
	Hence This statement is correct
	C)	FALSE
		The process of accumulating interest on interest is call coumpoding.
	D)
		FV= PV*(1+r)^n
		Where,
		FV= Future Value
		PV = Present Value
		r = Interest rate
		n= Number of years
		= $1000*( 1+0.11)^1
		=1000*1.11
		= $1110
		FALSE because $1110 would have present value $1000 today.
	Correct Option: B