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(4) You will get $450,000 from your rich uncle Jim in 15 years. The discount rate and the interest rate are 200/year, compounded annually. What is the present value of this gift from your uncle 1. $330,356.63 2. $331,356.63 3. $332,256.63 4. $333,256.63 5. $334,356.63
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Answer #1

FV = PV [ 1 + (r/n) ]nt

Here, FV = Future Value

PV = Present Value

r = rate

n = number of compounding in a year

t = number of years

Now let us put the figures in the above formula

$450,000 = PV [ 1 + (0.02/1) ]1*15

$450,000 = PV [ 1.02 ]15

PV = $450,000 / [ 1.02 ]15

PV = $334,356.63

So, the correct answer is option 5

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