Question

a. What is the present value​ (PV) of $60,000 received thirty years from​ now, assuming the interest rate is 6​% per​ year?

a. 10,447

b.8880

c. 18,282

d. 39,000

b. If $546 invested today yields $600 in one​ year's time, what is the discount​ factor?

a. 1.91

b. 0.09

c. 1.82

d. 0.91

c. If the one​-year discount factor is equal to 0.95238​, the interest must be equal​ to:

a.5.0%

b. 4.5%

c.2.5%

d.4.0%

Answer 1

1). Given that, amount received in t = 30 years is FV = $60000

interest rate = 6%

So, PV = Fv/(1+r)^t = 60000/1.06^30 = $10447.

(On excel use formula =PV(6%,30,0,-60000)

Option a is correct.

2). amount PV = $546 invested today yield FV = $600 in 1 years

So, discount factor = PV/FV = 546/600 = 0.91

Option d is correct.

3). one-year discount factor = 0.95238

So, interest rate = 1/DF - 1 = 1/0.95238 - 1 = 5.00%

Option a is correct.