What is the present value of $10,000 that will be received in 10 years if the...

What is the present value of $10,000 that will be received in 10 years if the appropriate interest rate is 6%. Do the calculation again with an interest rate of 10% and explain the result.

Expert Solution

	Present value	FV×(1÷(1+r)^n)

	Here,

A	rate per annum	6.00%
B	Number of years	10
C	Number of compoundings per per annum	1
A÷C	rate per period ( r)	6.00%
B×C	Number of periods (n)	10
	Future value (FV)	10,000

	Present value	$ 5,583.95
		10000×(1÷(1+6%)^10)

	Present value	FV×(1÷(1+r)^n)

	Here,

A	rate per annum	10.00%
B	Number of years	10
C	Number of compoundings per per annum	1
A÷C	rate per period ( r)	10.00%
B×C	Number of periods (n)	10
	Future value (FV)	10,000

	Present value	$ 3,855.43
		10000×(1÷(1+10%)^10)

Present value is decreasing with increase in interest rate. Present value and interest rate has inverse relationship.

jeff jeffy answered 1 year ago

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