If the interest rate is 6 percent, then the present value of $5,000 received ten years...

Question

Question

If the interest rate is 6 percent, then the present value of $5,000 received ten years from today is $2,583.34.

a. True
b. False

Answer 1

Answer #1

The formula used to determine present value is given by :

Present value = Cash flow / (1+r)ⁿ

where r is the interest rate and n is the number of years

Thus, Present value = 5000 / (1+6/100) ¹⁰

or, Present value = 5000 / (1.06) ¹⁰

or, Present value = 5000 / 1.79 = 2793.296

Hence the correct option is false.

Answer 2

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