Question

1. The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)

$37,736

$42,400

$40,000

$2,400

2. The present value of $30,000 to be received in two years, at 12% compounded annually, is (recorded to nearest dollar)

$37,736

$37,632

$23,700

$30,700

Answer 1

(1)-Present value of $40,000 to be received in one year, at 6% compounded annually

Future Value = $40,000

Annual Interest Rate (r) = 6% per year

Number of years (n) = 1 Year

Therefore, the Present Value = Future Value / (1 + r)ⁿ

= $40,000 / (1 + 0.06)¹

= $40,000 / 1.06

= $37,736

“Present Value = $37,736”

(2)-Present value of $30,000 to be received in two years, at 12% compounded annually

Future Value = $30,000

Annual Interest Rate (r) = 12% per year

Number of years (n) = 2 Years

Therefore, the Present Value = Future Value / (1 + r)ⁿ

= $30,000 / (1 + 0.12)²

= $30,000 / 1.2544

= $23,916

“Present Value = $23,916”

The correct answer choice is $23,916, but it’s not listed in the answer choices