What is the present value of CD with 4% annual interest that matures in 1 year...

What is the present value of CD with 4% annual interest that matures in 1 year with the value of $3000? What is the future value? What factor would determine which value you chose to use?

Expert Solution

Present Value = Future Value / (1 + Interest rate)^time period

Future Value = 3000

Interest rate = 4%

time = 1

therefore, Present Value = 3000/(1.04) = 2884.61

Present value is the value of money that you must invest in order to achieve a specific amount

Future value is the value of money that you would get over a specific period of time

Hence, you choose present value so that you invest an amount right now to achieve a desired amount as per the interest rate.

jeff jeffy answered 2 years ago

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